Tag Archives: asia

5 Top-Rated Global ETF Picks For Q4

The global markets went berserk in the third quarter with selling pressure hitting the ceiling. Back-to-back issues like the Chinese market crash, slowdown in the Japanese economy, return of deflationary fears in the Euro zone in spite of stimulus measure and slouching commodities bulldozed the market. Though the situation recovered a little to start Q4, odds remain as evident from the latest growth forecast cut by IMF. The organization slashed the global growth forecast (on October 6) for 2015 to 3.1% from 3.3% projected earlier. Slowing emerging market growth and the commodity market slump were held responsible for this sluggishness. The forecast for 2016 was reduced to 3.6% from 3.8% expected in July (read: 2 Winning Commodity ETFs for the Worst Q3 ). As per Reuters , the key industrial economies cut the rates to almost zero and shelled out around $7 trillion in quantitative easing programs in the seven years since the global financial crisis. But this huge influx of funding could not perk up growth, investment and consumer demand as anticipated and instead raised a cautionary flag over global growth (read: Expect Volatility in Q4? Try These ETF Ideas ). Still, the bulls can ride beyond the U.S. border. After all, most of the developed economies are thriving on easy money and thus act as lucrative investment propositions. Even at home, the hyper-active discussion over the Fed lift-off has taken a back seat after somber job data. Now the prospective timeline has shifted to the end of 2015 or early 2016, provided the economy gains momentum. Though cheap money inflows set the stage for bulls globally, investors need to be selective while playing this field, given the heightened uncertainty. How to Pick Right ETFs? First, fundamentals need to be favorable, and then investors can look at our Zacks ETF Rank. This ranking system looks to find the best funds in a given market segment based on a number fundamental and technical factors about them and the Zacks forecast for the underlying industry or asset class. Following this technique, we at Zacks revised our ETF ranks recently and found out that five global ETFs have been upgraded from #3 (Hold) #2 (Buy). We have also taken diversified exposure into our consideration, given the ongoing volatility in the country-specific exposure, and zeroed in on five global ETFs that are worth considering (see: Our Zacks ETF Rank Guide ): SPDR MSCI ACWI IMI ETF (NYSEARCA: ACIM ) This fund tracks the MSCI ACWI IMI Index. Though the ETF provides exposure to stocks across the developed and emerging markets, U.S. accounts for more than half of the asset base. Apart from this, Japan and UK take the next spots with about 8.1% and 7.3% exposure, respectively. In total, the fund holds about 800 stocks with each accounting for no more than 1.32% of assets. Financials, IT, Consumer Discretionary, Industrials and Health Care are the top five sectors with double-digit allocation each. The product has managed an asset base of $36.5 million and trades in good volume of more than 6,500 shares a day. It charges 25 bps in annual fees and was up 1.2% in the last one month. JPMorgan Diversified Return Global Equity ETF (NYSEARCA: JPGE ) The fund seeks to track the FTSE Developed Diversified Factor Index, following the “Smart Beta” strategy, to provide developed market equity exposure. The fund combines the two approaches under a single umbrella – a top down risk allocation framework and a bottom up multi-factor stock ranking process. The bottom up approach results in selecting stocks based on four factors: value, size, momentum and low volatility, while the top down approach results in an equal-weighted portfolio of stocks selected across 40 different regional sectors. This approach results in the fund holding a portfolio of 488 stocks from the developed markets with the U.S. taking one-fourth share. The fund charges 38 bps in fees and advanced over 2% in the last one month. This fund also has low risk quotient. SPDR MSCI World Quality Mix ETF (NYSEARCA: QWLD ) The fund looks to track the MSCI World Quality Mix Index to provide exposure to 24 developed economies focusing on matrices like value, low volatility and quality. This $6 million-ETF comprises 1,021 stocks. Sector-wise, Financials, IT, Health Care and Consumers get maximum exposure. Despite being a global equity ETF, the U.S. dominates the portfolio followed by Japan (8.24%), UK (8.1%) and Switzerland (4.1%). It charges 30 bps in fees for this exposure. The fund nudged up 0.6% in the last one month and has a Medium risk outlook. FlexShares STOXX Global Broad Infrastructure Index ETF (NYSEARCA: NFRA ) This ETF could be appropriate for investors seeking a play on the booming infrastructural activities worldwide. With slow global economic revival, spending on infrastructural activities has been picking up. This was truer in the developing regions rather than developed zones. Investors should also note that infrastructure is an interest rate sensitive sector, usually with strong yields. With a low rate environment prevalent across the globe, infrastructure looks attractive in the near term. NFRA looks to track the STOXX Global Broad Infrastructure Index. No stock accounts for more than 4.43% of the fund. The ETF presently holds 150 securities with total assets of $414.2 million. However, investors looking for heavy international exposure might be a little disappointed with this product, as close to half the portfolio is in the U.S. followed by 25% focus in Europe and the rest spread across the Asia-Pacific (15%), Asia (3%), Latin America (2%) and Asia (1%). The fund charges investors 47 basis points and has a yield of 2.40% per year. NFRA was up 1.3% in the last one month. The fund has a low risk profile. ALPS Workplace Equality ETF (NYSEARCA: EQLT ) The socially responsible fund looks to track the companies that have ‘progressive workplace policies that treat lesbian, gay, bisexual and transgender ( LGBT ) individuals equally and respectfully among all employees’. This produces a portfolio that has about 160 companies in its basket, while it has a slight tilt toward smaller companies, at least when compared to the S&P 500 index. It follows an equal-weight approach, so no single security makes up an outsized portion of the basket. The fund has double-digit exposure in sectors like consumer discretionary, financials, technology and industrials. EQLT charges 75 bps in fees and was almost flat in the last one month. The product has a low risk outlook. Link to the original post on Zacks.com

Risk Adjusted Sector ETF Performance: 3rd Quarter Update

Analysts often compare sectors for clues about the economy’s performance and future investments. The performance of these sectors must be adjusted for beta, or risk. What does this 2rd quarter adjusted performance tell us? Seeking Alpha readers know that I periodically analyze the performance of the nine S&P 500 sector ETFs to obtain clues about where the economy is going. Last years’ underperformance by the Materials Select Sector SPDR ETF (NYSEARCA: XLB ) was only the beginning of a very bad year (so far!) for those stocks. In contrast, after adjusting for risk, Consumer Discretionary (NYSEARCA: XLY ) stocks performed well late last year: and that outperformance has continued. (You can see the article on which this analysis is based here .) The most recent quarter was unpleasant for common stocks: so while all nine sectors fell, we must adjust this poor performance for the varying risk profiles of each sector before we compare it to the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ). An illustration of how this is done will help, and point out a major red flag for the market going forward. Investors know that the healthcare sector has been one of the leaders in this bull market since it began in 2009. In the last three months the Health Care Select Sect SPDR ETF (NYSEARCA: XLV ) fell 12%, two and a half percentage points more than the 9.5% for SPY. So yes, the market has lost some of its leadership: always a source of worry for bulls. But after adjusting for risk, the situation is even worse than it looks! According to yahoo finance XLV has a beta of .59; in a down market we should expect it to fall less than the broad indices. Not more! Specifically we should expect it to fall only 5.6%: (S&P 500 change) x (Sector ETF beta) = (expected risk adjusted ETF return) so (-9.5%) x (.59) = (-5.6%) So the healthcare sector underperformed, not by 2.5%, but by 5.6%! The full results are shown below. You can see that along with healthcare, energy (NYSEARCA: XLE ) and basic materials performed much worse than the market in the last few months. Risk Adjusted ETF Performance 3rd Quarter 2015 Select Sector SPDR ETF beta Actual Return Expected Return +/- Discretionary .91 -3.0 -8.7 +5.7 Technology (NYSEARCA: XLK ) 1.35 -9.1 -12.8 +3.7 Industrials (NYSEARCA: XLI ) 1.00 -11.0 -9.5 -1.5 Basic Materials 1.13 -21.0 -10.7 -10.3 Energy 1.02 -22.0 -9.7 -12.3 Staples (NYSEARCA: XLP ) .49 -3.5 -4.7 +1.2 Health Care .59 -12.0 -5.6 -6.4 Utilities (NYSEARCA: XLU ) .44 -3.0 -4.2 +1.2 Finance (NYSEARCA: XLF ) 1.19 -8.0 -11.3 +3.3 S&P 500 Index 1.00 -9.5 -9.5 zero All three underperformers can turn to special situations as an explanation: Healthcare? Hillary Clinton’s drug company bashing . Energy? The continued weakness in oil and natural gas prices. Basic materials? Continued weakness in Asia , especially China. Even given the dour economic news in these sectors, investors should remember their underperformance signals that this bad news has signaled the market has still not completely discounted this poor outlook. Focusing on healthcare in particular, the failure of this sector’s leadership has ominous signals for the market going forward. While some market indexes have signaled a bear market is now in progress–an issue I shall address in an article tomorrow– I am willing to give the market a bit of slack here. Why? Notice the strength in consumer discretionary stocks. This suggests families are benefiting from lower energy prices: a case of one good cancels out the bad, perhaps? The strength in tech is encouraging. Surprisingly the best indication might be the belated showing of the financial stocks. Remember: this whole debacle began years ago in the financial sector! For them to perform well in a weak market which still may face an interest rate increase from the FED , is encouraging. Keep your long and short powder dry until the market gives us clearer signals. More on this in my next article.

Following The Smart Money For Asian Stocks Beyond 13Fs

Summary Filing form 13F, the reporting of holdings for institutional investment managers with investment discretion over $100 million or more in stocks, is unique to the U.S. It is possible to utilize a piggybacking strategy for idea generation in Asia, if you know who and how to follow. I utilize a 360-degree idea generation process via screens, insider trades, 13Fs, fund manager letters, analyst reports, blogs, forums among others. Following The Smart Money In Asia In the U.S., institutional investment managers with investment discretion over $100 million or more in stocks have to file 13Fs declaring their holdings (long only) with the U.S. Securities and Exchange Commission within 45 days of every quarter. This has indirectly made the investment strategy of cloning the portfolios of well-known and successful fund managers a reality. Even for investors who do not believe in replicating the positions of their favorite investors in full, they might still generate potential investment ideas by taking a peek at the investors’ holdings. Since I invest in both Asian and U.S. stocks, I have always thought about the possibility of applying certain aspects of this piggybacking strategy in the Asian context and this is precisely the focus of this article. In the sections below, I will provide a few examples of generating Asian stock ideas by following the smart money. That being said, it is intriguing that while I generated most of my stock ideas via quantitative screens, my investments and calls were validated to a large extent by similar positions that other fund managers and investors held. I will share some of these past and current stock ideas below. Following U.S. Investors Vested In Asian Stocks An increasing number of U.S. funds are investing in Asia-listed stocks. While they do not have to file 13Fs for these non-U.S. holdings, it is possible to uncover these hidden gems by reviewing mutual funds’ shareholder reports and hedge funds’ investor letters (assuming that they are accessible). Let me illustrate this with some examples. Oriental Watch Holdings Ltd ( OTC:ORWHF ) (0398.HK) was the first Asia-listed stock which I wrote about here on Seeking Alpha. Oriental Watch simply just appeared on my net-net screens one day, and it appeared to be attractive given its long-term profitability and dividend track record and the value of its self-owned properties. I was not alone in my views on Oriental Watch. Tweedy Browne, Benjamin Graham’s former broker which subsequently made its foray into fund management as a classic Graham value manager (read “The Little Book Of Value Investing” by Christopher Browne if you are interested about understanding the firm’s investment philosophy), first disclosed its stake in the stock in its Q3 2013 commentary , and referred to it as “a luxury retailer and a classic Ben Graham net current asset microcap stock, which at purchase was trading at two-thirds of its net cash and inventories.” As of June 30, 2015, Tweedy, Browne Global Value Fund and Tweedy, Browne Global Value Fund II held 7,364,000 and 3,348,000 shares of Oriental Watch, respectively. Other Hong Kong-listed stocks currently held by Tweedy Browne include Great Eagle Holdings Ltd ( OTCPK:GEAHF ) (41 HK), Hengdeli Holdings Ltd ( OTCPK:HENGY ) (3389 HK), Miramar Hotel & Investment ( OTC:MMHTF ) (71 HK) and Tai Cheung Holdings Ltd ( OTC:TAICY ) (88 HK). Tweedy Browne also holds shares in a Japanese net-net, Shinko Shoji ( OTCPK:SKSJF ) (8141 JP), which I briefly wrote about here . Besides reading investor letters and shareholder reports of U.S. funds investing globally, one can also follow individual fund managers on their social media platforms such as blogs. Travis Wiedower, Managing Director of Wiedower Capital, a small value-oriented investment firm, writes a blog (called Egregiously Cheap) and he recently wrote an article titled “Oriental Watch: Deep Value at its Finest”. In the article, Travis refers to Oriental Watch as a “company selling for ~35% of liquidation value that has a clear route back to profitability.” This is the first Asia-listed stock that Travis has written about, and I hope he can share more such ideas in the future! Following Asian Fund Managers Directly Asian mutual funds will disclose their holdings periodically in quarterly or semi-annual shareholder reports, which are typically available on their respective websites. For Asian hedge funds, I will be on the lookout for any interviews that the fund managers have done or investor letters that they have made available. Ronald Chan will probably be a familiar name to my readers. Ronald Chan is the author of the book “The Value Investors: The Lessons From The World’s Top Fund Managers, which I have quoted a couple of times in my previous articles. Ronald is also the author of another book “Behind the Berkshire Hathaway Curtain: Lessons from Warren Buffett’s Top Business Leaders,” where he interviewed the top managers of Berkshire Hathaway’s subsidiaries. It is obvious from these two books that Ronald is a value investor; he is currently the Chief Investment Officer of Chartwell Capital based in Hong Kong, which he started in 2007. In a Barron’s interview published in November 2014, Ronald spoke about some of his holdings, including Oriental Watch (I am using the same stock as an example to illustrate that implementing a piggybacking strategy in Asia is more difficult compared with the U.S., but not impossible if one knows where to look). Ronald has this to say about Oriental Watch: Oriental Watch is a classic Benjamin Graham example where its assets are trading much higher than its market cap. Its market cap is about HKD900 million. Its retail properties are worth HKD650 million. The watch inventory, which is 70% Rolex, has a value of HKD1.8 billion. Add cash, minus debt, I think it’s worth HKD2.4 billion. I can sleep at night because I know that it has good inventory and the retail locations that are worth a fortune. This is a classic asset-driven, asset-backed idea which no one looks at! In his interview with Barron’s, Ronald also highlighted the following Asian stocks: Hyundai ( OTC:HYMPY ) (005380.KS), Kia ( OTC:KIMTF )(000270.KS), Central China Real Estate (832 HK) and Dynam Japan Holdings Co. Ltd. ( OTC:DJPHF ) (6889 HK), a Magic Formula stock which I wrote about here . Cederberg Capital is another Asian fund that I follow. On its website , Cederberg Capital outlines its investment approach as follows: “Cederberg Capital utilizes a disciplined value-oriented approach in order to protect capital during periods of market declines and to maximize returns in the long run.” In Cederberg Greater China Equity Fund’s Q2 2015 letter, Managing Director Dawid Krige also commented on the firm’s investment philosophy: We are value investors at heart. However, we aren’t looking for Ben Graham’s “net-nets” or the “cigar butts” of the early-Buffett years. In our experience “cheap” often stays cheap in China, hence we are better off buying undervalued quality, i.e. good businesses managed by trustworthy people. We love growth, if through our research we can gain confidence about the likelihood it will be realised. However, we are careful not to overpay for growth, hence we always insist on a significant margin of safety, regardless of a company’s growth potential. Past and present investments that Cederberg Capital has profiled or commented on in its letters include Kweichow Moutai (600519 CH), which owns the top Maotai liquor brand in China, and Clear Media ( OTC:CRMLY ) (100 HK). Clear Media was a past investment of mine which I successfully exited with a 80% return in 14 months in August 2014, inclusive of a special dividend. Clear Media was an outdoor media company with dominant bus-shelter advertising network; it boasted an unique mix of deep value and wide moat characteristics. At the point of my purchase, Clear Media traded at 3x EV/EBITDA, with net cash accounting for close to half of market capitalization. Its business and attractive returns on capital were protected by high barriers to entry due to local regulatory approvals required for construction and maintenance of bus shelters. However, it is unfortunate (for investors like us) that Cederberg Capital has decided to “limit discussions of existing holdings to protect our intellectual property and to mitigate any behavioral biases, though we will continue to discuss investments we’ve exited in future letters.” Nevertheless, I look forward to reading Cederberg Capital’s future letters to learn about the firm’s past “case studies.” Replicating Guru Investors’ Potential Buys In Asia Via Quantitative Screening Walter Schloss is one of the deep value investors that I admire and seek to emulate, particularly considering that he has the longest and most consistent investment track records among his peers. However, it is regrettable that Walter Schloss stopped managing money in 2001 (partly due to the fact that cheap U.S. stocks became hard to find), and he never invested in Japan or Asian stocks given concerns over differences in politics, language and regulations. Nevertheless, I thought hard about what Walter Schloss could have potentially bought in Asia if he applied his stock selection criteria for U.S. In an article titled “Walter Schloss’ Japan Shopping List For Deep-Value Stocks” published here , I did a screen based on Schloss’ 16-point “investment checklist” and found 20 Japanese stocks and 299 Asian stocks that will meet his stock selection criteria of trading near historical share price lows, being valued at a discount to net asset value and having debt-to-equity ratios below 1. Looking ahead, I plan to try to replicate other investors’ investment strategies in Asia using screens and sharing the results with my readers and subscribers. Concluding Thoughts Personally, I don’t subscribe to the view of cloning any investor’s portfolio lock, stock and barrel, even for U.S. stocks. The reason is that there are various complications involved with piggybacking such as time lag, average purchase cost and portfolio sizing. In the Asian context, a complete cloning approach is even more risky, considering that it is more difficult to track any individual fund manager’s exact holdings and buy/sell history with reasonable accuracy. Instead, I advocate that investors use fund managers’ holdings as either an idea generation tool or an alternative form of validation of one’s original investment thesis. Note: I utilize a 360-degree process to generate investment ideas, including screens, insider trades, 13Fs, fund manager letters, analyst reports, blogs, forums among others. Subscribers to my Asia/U.S. Deep-Value Wide-Moat Stocks exclusive research service get full access to the list of deep-value & wide moat investment candidates and value traps, including “Magic Formula” stocks, wide moat compounders, hidden champions, high quality businesses, net-nets, net cash stocks, low P/B stocks and sum-of-the-parts discounts.