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Asset Class, Sector, And Country Returns For 2015

Every chart tells a story. Which story depends on what you choose to see. The asset class tables tell stories of best returns, worst returns, or a middle ground that avoids both. Maybe it’s the tale of mean reversion and infinite cycling of markets. Or randomness. Unpredictability. Irrationality. I’ve explained it before here , here , and here . This time, I’ll hold off till the end because most people will see what they want to see and ignore the rest. As usual, I’ll point out a few things I see in the tables, along with some other year-end data that was left out. Let’s get started. It was a lackluster year. For the most part, assets went nowhere in 2015. Emerging markets are the sole exception finishing the year with a double-digit loss. Emerging markets lost money four of the last five years, including losses three years in a row. A track record like that is a solid reason to dump an asset…or buy one. Depending on how you see things, emerging markets could be the best or worst investment going forward. Emerging markets lost money four of the last five years, including losses three years in a row. A track record like that is a solid reason to dump an asset…or buy one. Depending on how you see things, emerging markets could be the best or worst investment going forward. REITs are the best performer five of the last six years, the best annual returns over the last 15 years, and finished positive seven years in a row. Dividends drove a lot of that performance. REIT dividend yields are half of what they were in 2001. High-yield bonds were in the red for the first time in seven years. High-yield bonds were actually positive through June, though not by much. Then, the Fed raised rates for the first time in a decade. I’m sure many high-yield bond funds did worse. I’m certain many investors were caught by surprise. They wanted to boost their bond yield by 1-2% without realizing they were taking on more risk for the return. A diversified portfolio lost money for the first time since 2008, underperforming cash. The range of returns, from best to worst, was the smallest it’s been over the last 15 years. It’s hard to complain about a 1% loss when the best performer in the portfolio earned 2.8%. I guarantee many will complain anyway because it didn’t live up to the last few years. The S&P 500 is now positive for seven straight years, along with 12 of the last 15 years. That has only happened twice before – an eight-year stretch from ’82 to ’89 and a nine-year run from ’91 to ’99. Back in 2008, how many people predicted a positive S&P 500 for seven years straight? My guess – nobody. The S&P 500 sectors were split evenly last year with five winners and five losers. Those five winners haven’t seen a losing a year since 2008. Collectively, the sectors have performed great since the crisis. Every sector was positive in four out of the last seven years. It could have been five, if it wasn’t for the energy sector’s 2014 loss. Of course, energy was considered cheap at the end of 2014 (even I thought so). Then, it got cheaper in 2015. As a group, the developed markets aka MSCI EAFE basically broke even. For developed countries, Denmark actually had the best returns of 2015, at 24%, while Canada was the worst. Finland, Denmark, Belgium, and Switzerland each extended their gains to four years in a row while Ireland hit its fifth. If you were ranking developed countries based on highest CAPE ratio, the U.S. would be #4. Only Denmark (#1), Ireland (#2), and Japan (#3) are higher. As for consecutive losses, six developed countries – Germany, U.K., Spain, Australia, Sweden, and Norway – now have two losing years in a row (none have three). Of those six, Norway and Spain have the lowest CAPE ratio. As I said at the top, emerging markets have seen the worst of it the past few years. The table only tells half the story. Only two emerging market countries – Russia and Hungary – were positive for 2015, out of 23 in the MSCI EM index. And consecutive gains don’t exist. Hungary had the best year at 36%. Greece was the worst with a 61% loss, following a 40% loss in 2014. Buying a Greece ETF to start 2015 was an expensive lesson. Markets that fall far can still fall a lot further. Greece wasn’t alone. Four other countries – South Korea, Mexico, Malaysia, and Poland – have two losing years in a row. And four – Brazil, Chile, Colombia, and Czech Republic – sit with a three-year losing streak. With all that carnage, it’s no surprise that emerging markets have the lowest CAPE ratio and highest expected returns than any other asset class to start 2016. Remember If you shoot for the best performers every year, you risk ending up with the worst. While the worst performers, the hardest to buy into, can sometimes produce the best results…for those with patience and a high tolerance for pain. However, if you try to avoid the worst, you’ll likely miss out on the best, while ending up somewhere in the middle. And if you expect greatness every year, you’ll be disappointed often. Just look at 2015.

Global Rout To Start 2016

Below is a look at our trading range screen for the 30 largest country ETFs traded here in the U.S. As shown, just 3 of 30 are NOT in oversold territory after today’s sell-off. And three of the biggest countries – Germany (NYSEARCA: EWG ), Japan (NYSEARCA: EWJ ) and the US (NYSEARCA: SPY ) are the most oversold of the bunch. Nine countries are starting the year down more than 3%, and twenty-one are more than 5% below their 50-day moving averages. The three countries that aren’t oversold are Australia (NYSEARCA: EWA ), Colombia (NYSEARCA: GXG ) and India (NYSEARCA: PIN ).

8 ETFs To Watch In December

Traditional investors may pin hopes on the Santa Claus rally in the most successful month of the year, i.e., December, but they should note that this time Christmas might be a little dull, defying the natural progression of the end-of-season rally. A consensus carried out from 1950 to 2013 has revealed that December has ended up offering positive returns in 49 years and negative returns in 16 years, with an average return of 1.59%, as per Moneychimp , the best of the year. But this year, the Fed is scheduled for a rate hike after a decade, provided the economic momentum remains the same. And though the move now seems well digested by the market, a certain shock is inevitable post lift-off. In any case, 2015 had been quite downbeat so far. Even historically strong months couldn’t live up to investors’ expectations. All these made December a keenly watched month for the investing legion. We thus pinpoint a few ETFs that are highly in focus and could hop or drop in December. iPath U.S. Treasury Flattener ETN (NASDAQ: FLAT ) As the Fed hikes the benchmark interest rate, the initial blow would be at the short-end of the yield curve. The investing world has already started to prepare for the move. As a result, yield on the 6-month Treasury note soared 15 bps, from the 0.27% level seen at the start of November to 0.42% on November 30. In the same time frame, the yield on the 10-year Treasury note rose just 1 basis point to 2.21%. In fact, in the recent sessions, yields on 10-year U.S. Treasuries declined, indicating a flattening of the yield curve. So, a keen watch on the inverse bond ETF FLAT is needed to earn some quick gains from the bond market. This product provides inverse exposure to the Barclays US Treasury 2Y/10Y Yield Curve Index, which delivers returns from the steepening of the yield curve through a notional rolling investment in U.S. Treasury note futures contracts. FLAT was up 1.3% in the last one month. ALPS Barron’s 400 ETF (NYSEARCA: BFOR ) This all-cap U.S. equity ETF could be in watch in December. The fund could be used as a representative of the total stock market performance in a volatile (expectedly) month. It is made up of high-quality U.S. stocks. Since the month of December is likely to stay volatile and large-cap stocks might be hurt by a rising greenback post Fed tightening, an all-cap quality U.S. ETF might be the key to win ahead. ALPS U.S. Equity High Volatility Put Write Index ETF (NYSEARCA: HVPW ) The markets are likely to be wobbly post lift-off, and volatility levels should spike. Going bull on high-beta stocks may lead you to losses then. If this happens, investors can have a look at alternative ETFs like HVPW. The fund looks to take advantage of the stocks with the highest volatility in the U.S. equity markets. As the volatility in a given stock rises, so does the price of the options traded on it. The underlying index of the fund seeks to generate income by selling put options on the most volatile stocks in a given two-month period, along with interest earned on T-bills. HVPW added over 0.6% in the last one month. Vanguard High Dividend Yield ETF (NYSEARCA: VYM ) Since income ETFs underperform when rates rise, this high-income U.S. equities ETF might fall out of investors’ favor in December. However, still-subdued inflation and global growth worries might keep the yields on benchmark 10-year U.S. Treasury from rising fast. If this happens, VYM may not be as hit as it is feared right now. As of November 30, 2015, the fund yielded about 3.09%, while the yield on benchmark 10-year U.S. Treasury is 2.21%. VYM is down about 0.9% in the last one month (as of November 30, 2015). iShares U.S. Preferred Stock ETF (NYSEARCA: PFF ) Even in a rising rate environment, there are ways beat to the benchmark Treasury yield and earn smart income. Preferred stocks are one such option. Preferred stocks are hybrid securities that are characterized by both debt and equity. They have a higher claim on assets and earnings than common stock. These securities are less volatile than stocks, and yield in the range of 5-6%. PFF yields 5.87% as of November 30, 2015, while it charges 47 bps in fees. The fund was up about 3% in the last one month. iShares Russell 2000 ETF (NYSEARCA: IWM ) Small-cap stocks are the barometer of domestic economic health. So, when the U.S. economy shifts gear in December and experiences policy normalization, small-cap stocks should be the most beneficial zone. While small-cap growth ETFs like the PowerShares Fundamental Pure Small Growth Portfolio ETF (NYSEARCA: PXSG ) and the iShares Russell 2000 Growth ETF (NYSEARCA: IWO ) have already started rallying, we believe these could be high-risk choices, as smaller-capitalization and growth stocks are highly volatile in nature and succumb to a slowdown once the Fed hikes rates. So, investors can keep a close watch on small-cap blend ETFs like IWM. This Zacks Rank #2 (Buy) ETF was up over 3.2% in the last one month. WisdomTree International Hedged Dividend Growth ETF (NYSEARCA: IHDG ) While the Fed is preparing for a hike, other developed economies of the world and a few emerging economies are going the opposite direction. Due to growth issues, global superpowers like Europe, Japan and Australia are presently pursuing easy money policies. While stocks of the concerned region are likely to soar, a currency-hedged approach is essential to set off the effect of a surging greenback. IHDG serves both aspects. Moreover, IHDG takes care of investors’ income too, as the fund selects dividend-paying companies with growth features in the developed world ex-U.S. and Canada. This Zacks ETF Rank #3 (Hold) ETF was up over 1.9% in the last one month and yields 1.86%. Market Vectors ChinaAMC SME-ChiNext ETF (NYSEARCA: CNXT ) China, the epicenter of the global chaos in summer, should also be in focus in December. In any case, this segment is exhibiting excessive volatility lately, throwing shocks and surprises now and then. While Chinese stocks and ETFs soared at the start of November on a flurry of economic and demographic policy easing, it suffered its worst decline since summer to conclude the month. News about securities regulators’ probe into brokerages caused a stock market rout in China. On the positive side, the IMF agreed to declare yuan as a reserve currency, which hints at a stable economy. So, Chinese ETFs are on the fence now, with possibilities and perils on either side, and investors may be interested in tracking its course in December. Original Post