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ETF Deathwatch For April 2016: 35 Names Added

A whopping 35 ETFs and ETNs joined ETF Deathwatch this month. However, seven came off the list thanks to improved health, and another 11 exited due to their demise and liquidation. The net increase of 17 products pushes the count to an all-time high of 435. Despite the 585 lifetime product closures, 25 of which have occurred this year, the quantity of funds in jeopardy of increasing the death toll continues to grow. The primary reason is that all of the major investment categories are covered. New products coming to market tend to target a narrow niche, or they add a small twist to an existing strategy in an effort to be unique. Most of the 35 products joining the list fit into one of these descriptions. Even though the 331 ETFs on Deathwatch account for 76% of the 435 total, ETNs continue to have the highest representation. There are 204 ETNs listed for trading and 104 are on Deathwatch. That is more than half. Ten years ago, when ETNs first arrived on the scene, they offered exposure to many market segments that ETFs were avoiding. However, ETF offerings continue to evolve and have been encroaching on territories that were once the domain of ETNs. Today, most successful ETNs target MLPs, VIX futures, leveraged commodity futures, leveraged dividend plays or they are customized products for specific asset managers. There are only 33 ETNs with asset levels above $100 million. Actively managed ETFs also have above-average representation with 39 of the 136 (28.7%) actively managed funds finding themselves on Deathwatch. The 145 smart-beta funds on this list equates to 24.4% of that group. Traditional capitalization-weighted index ETFs appear to have the best chance of survival with just 15.8% of them currently in jeopardy. Combined, the 331 ETFs in these three ETF segments says that one in every five (20%) ETFs is on Deathwatch. The average asset level of products on ETF Deathwatch increased from $6.2 million to $6.6 million, and the quantity of products with less than $2 million inched higher from 97 to 98. The average age decreased from 46.6 to 46.4 months, and the number of products more than five years old increased from 138 to 148. The fact that sponsors have continued to subsidize 148 unprofitable funds for more than five years indicates they are either extremely patient or in denial. ETF Deathwatch is not just about closure risk. Liquidity risk should be a primary concern if you are considering any of these funds. On the last day of March, 277 ETFs posted zero volume, and 23 went the entire month without a single trade. Being lucky enough to get your purchase order filled within a reasonable bid/ask spread is one thing. Finding a buyer when you are ready to sell can be quite another. The 35 ETFs and ETNs added to ETF Deathwatch for April Cambria Value and Momentum (NYSEARCA: VAMO ) DB Agriculture Double Long ETN (NYSEARCA: DAG ) Direxion Daily Cyber Security Bear 2x (NYSEARCA: HAKD ) Direxion Daily Cyber Security Bull 2x (NYSEARCA: HAKK ) Direxion Daily Pharmaceutical & Medical Bear 2x (PILS) Direxion Daily Pharmaceutical & Medical Bull 2x (PILL) Direxion S&P 500 RC Volatility Response (NYSEARCA: VSPY ) EGShares EM Core ex-China (NYSEARCA: XCEM ) First Trust China AlphaDEX (NASDAQ: FCA ) First Trust Strategic Income (NASDAQ: FDIV ) First Trust Taiwan AlphaDEX (NASDAQ: FTW ) FlexShares Credit-Scored US Long Corp Bond (NASDAQ: LKOR ) FlexShares US Quality Large Cap (NASDAQ: QLC ) iPath S&P 500 Dynamic VIX ETN (NYSEARCA: XVZ ) IQ Hedge Strategy Macro Tracker (NYSEARCA: MCRO ) IQ Leaders GTAA Tracker (NYSEARCA: QGTA ) iShares Currency Hedged International High Yield Bond (NYSEARCA: HHYX ) iShares MSCI Saudi Arabia Capped (NYSEARCA: KSA ) John Hancock Multifactor Consumer Discretionary (NYSEARCA: JHMC ) John Hancock Multifactor Financials (NYSEARCA: JHMF ) John Hancock Multifactor Mid Cap (NYSEARCA: JHMM ) John Hancock Multifactor Technology (NYSEARCA: JHMT ) KraneShares Bosera MSCI China A (NYSEARCA: KBA ) ProShares Hedged FTSE Japan (NYSEARCA: HGJP ) ProShares MSCI Europe Dividend Growers (NYSEARCA: EUDV ) ProShares S&P 500 Ex-Financials (NYSEARCA: SPXN ) ProShares S&P 500 Ex-Health Care (NYSEARCA: SPXV ) ProShares S&P 500 Ex-Technology (NYSEARCA: SPXT ) PureFunds ISE Mobile Payments ( IPAY ) Recon Capital DAX Germany (NASDAQ: DAX ) Renaissance IPO (NYSEARCA: IPO ) SPDR S&P International Dividend Currency Hedged (NYSEARCA: HDWX ) SPDR MSCI International Real Estate Currency Hedged (NYSEARCA: HREX ) WisdomTree Global Natural Resources (NYSEARCA: GNAT ) WisdomTree Middle East Dividend (NASDAQ: GULF ) The 7 ETPs removed from ETF Deathwatch due to improved health: AdvisorShares Madrona International (NYSEARCA: FWDI ) AdvisorShares WCM/BNY Mellon Focused Growth ADR (NYSEARCA: AADR ) ALPS Emerging Sector Dividend Dogs (NYSEARCA: EDOG ) iPath Pure Beta Crude Oil ETN (NYSEARCA: OLEM ) ProShares S&P MidCap 400 Dividend Aristocrats (NYSEARCA: REGL ) ProShares Short Basic Materials (NYSEARCA: SBM ) ValueShares International Quantitative Value (BATS: IVAL ) The 11 ETFs removed from ETF Deathwatch due to delisting: ETFS Physical White Metal Basket Shares (NYSEARCA: WITE ) Recon Capital FTSE 100 (NASDAQ: UK ) PowerShares China A-Share (NYSEARCA: CHNA ) PowerShares Fundamental Emerging Markets Local Debt (NYSEARCA: PFEM ) PowerShares KBW Insurance (NYSEARCA: KBWI ) Direxion Value Line Conservative Equity (NYSEARCA: VLLV ) Direxion Value Line Mid- and Large-Cap High Dividend (NYSEARCA: VLML ) Direxion Value Line Small- and Mid-Cap High Dividend (NYSEARCA: VLSM ) ALPS Sector Leaders (NYSEARCA: SLDR ) ALPS Sector Low Volatility (NYSEARCA: SLOW ) ALPS STOXX Europe 600 (NYSEARCA: STXX ) ETF Deathwatch Archives Disclosure: Author has no positions in any of the securities mentioned and no positions in any of the 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.

Lack Of Earnings Quality And Debt Downgrades Limit S&P 500’s Upside

Four in a row. That’s how many consecutive 3-point baskets Andre Iguodala scored against the Houston Rockets in last night’s playoff game. There has also been a “4 for 4″ in the financial markets. One after another, major banks have lowered their year-end targets for the S&P 500. Most recently, the global equity team at HSBC shaved its year-end target to 2,050 from 2,100. On the surface, HSBC’s cut is less severe than other bank revisions to S&P 500 estimates. That said, J.P Morgan pulled its projection all the way down from 2200 to 2000. Credit Suisse? Down to 2,050 from 2,200. And Morgan Stanley slashed its year-end projection from 2175 to 2050. So what’s going on? We had four influential banks expressing confidence in the popular benchmark a few months earlier. Their analysts originally projected total returns with reinvested dividends between 5%-10% in the present 12-month period. Now, however, with the S&P 500 only expected to finish between 2000-2050, these banks see the index offering a paltry 0%-2%. Another way some have phrased it? Excluding dividends, there is “zero upside.” Here is yet another “4 for 4” that makes a number of analysts uncomfortable. Year-over-year quarterly earnings have fallen four consecutive times. That has not happened since the Great Recession. And revenue? Corporations have put forward year-over-year declines in sales growth for five consecutive quarters. That hasn’t happened since the Great Recession either. The bullish investor case is that the trend is going to start reversing itself in the 2nd half of 2016. However, forward estimates of earnings growth and revenue growth are routinely lowered so that two-thirds or more companies can surpass “expectations.” And it is not unusual for estimates to be lowered by 10%. Take Q1. Shortly before the start of the year, Q1 estimates had been forecast to come in at a mild gain. Today? We’re looking at -9% or worse for Q1. Over the previous five years, Forward P/Es averaged 14.5. They now average 16.5 on earning estimates that will never be realized. In essence, S&P 500 stock prices are sitting a softball’s throw away from an all-time record (2130), while the forward P/E valuations sit at bull market extremes that do not justify additional appreciation in price. And what about earnings quality? Wall Street typically presents two kinds: Generally Accepted Accounting Principles (GAAP) earnings and non-GAAP earnings that excludes special items, non-recurring expenses and a wide variety on “one-time charges.” The foolishness of non-GAAP presentations notwithstanding, one might disregard the manipulation when non-GAAP and GAAP are within the usual 10% range. This was more or less the case between 2009 and 2013. By 2014, however, the gap between the two different earnings per share reports began to widen. By 2015, “manipulated” pro forma ex-items earnings exceeded actual earnings per share by roughly $250 billion, or 32%. Can you spell c-h-i-c-a-n-e-r-y? Of particular interest, there was a similar disconnect between GAAP and non-GAAP in 2007. Non-GAAP in the year when the last bear market began (10/07) was 24% higher than GAAP earnings per share. It follows that the discrepancy today in earnings quality is even wider than it was prior to the stock market collapse. “But Gary,” you protest. “As long as the Federal Reserve and central banks are exceptionally accommodating, stocks should excel.” In truth, however, the long-term relationship between the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) and the Vanguard Total Bond Market ETF (NYSEARCA: BND ) demonstrate that the bond component of one’s portfolio has been more productive over the last 12 months than the stock component. Bulls can point to the market’s eventual ability to shake off the euro-zone crisis of 2011. That was the last time that the SPY:BND price ratio struggled for an extended length of time. Back then, however, the Federal Reserve offered two aggressive easing policies – “Operation Twist” and “QE 3.” Today? Stocks are not only extremely overvalued on most historical measures, but the Fed has only lowered its tightening guidance from four hikes down to two hikes. Is that really enough ammunition to power stocks to remarkable new heights? “Okay,” you acknowledge. “But rates are so low, they are even lower than they were in 2013. And that means, going forward, there is no alternative to stocks.” Not only does history dispel the myth that there are no alternatives to stocks , but many corporations that have been buying back their stocks at attractive borrowing costs are now at risk of debt downgrades, higher interest expenses and even default. For example, the moving 12-month sum of Moody’s debt downgrades hopped from 32 a year ago to 61 in March of 2016. Meanwhile, the longer-term trend for the widening of credit spreads between investment grade treasuries in the iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ) and high yield bonds in the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG ) suggest that the corporate debt binge may soon come to an ignominious end. Foreign stocks, emerging market stocks as well as high yield bonds all hit their cyclical tops in mid-2014, when the credit spreads were remarkably narrow. The IEF:HYG price ratio spikes and breakdowns notwithstanding, the general trend for 18-plus months has been less favorable to lower-rated corporate borrowers. The implication? With corporate credit conditions worsening at the fastest pace since the financial crisis , companies may be forced to slow or abandon stock share buybacks. What group of buyers will pick up the slack when valuation extremes meet fewer stock buybacks? Click here for Gary’s latest podcast. Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

5 Secure Stocks For The Tough Times Ahead

Many long-term stock market investors are afraid right now, and who’s to blame them? We are entering a very contentious election summer, and the globe seems to be sitting on a powder keg. News of likely “Trump Riots”, Russian planes buzzing U.S. warships, and a host of other tensions have investors extremely nervous about the future. Click to enlarge Time has confirmed that the best way to deal with uncertainty is to get back to the basics when it comes to the stock market. Buying proven, long-term, steady dividend stocks is one tactic that has been proven to work over time, no matter what happens in the short term. Drilling into the stocks that are steady, dividend-paying performers, utilities are always at the top of the list. The question becomes: Which ones make the most sense right now? We looked over the universe of utility stocks and narrowed it down to five that we expect to weather any upcoming storm. Not to mention, make great long-term investments no matter what the future holds. The combination of the steady dividend and stability of utilities creates the ideal stock for nervous long-term investors. Black Hills Corporation (NYSE: BKH ) This $3 billion market cap South Dakota-based utility provides natural gas and electricity to clients in Kansas, Colorado, Nebraska, Wyoming and South Dakota. Black Hills is currently trading in the $58.00 per share zone and has boasted a 13.7% one-year total return. We love the current dividend yield of 2.8%, but the company lost money in 2015 due to the weak oil & gas business. However, true to form, Black Hills hiked dividends in February for the 46th consecutive time. The acquisition of SourceGas, a company that provides natural gas to customers in Arkansas, Colorado, Nebraska and Wyoming and maintains a Colorado-based gas pipeline, adds to the bullish picture. BMO Capital Group analyst Michael Worms ramped up his rating on the company recently due to the Source Gas deal. He called the deal “transformative” due to it slashing Black Hills’ exposure to unregulated businesses and boosting its customer base by about 50%, to 1.2 million. The EPS is expected to move higher, from $3.07 per share in 2016 to $3.47 in 2017. PPL Corp. (NYSE: PPL ) A $25.4 billion market cap, this Allentown, Pennsylvania-based utility returned an impressive 23.6% over the last year. It currently throws off a 4% annual dividend yield at a share price in the $37.50 zone. Through its subsidiaries, PPL delivers electricity to customers in the United Kingdom, Pennsylvania, Kentucky, Virginia and Tennessee; delivers natural gas to customers in Kentucky; generates electricity from power plants in the northeastern, northwestern and southeastern United States; and markets wholesale or retail energy in the northeastern and northwestern parts of the United States. PPL operates in four segments: the U.K. Regulated Segment comprising PPL Global and WPD Ltd.’s (WPD) regulated electricity distribution operations; the Kentucky Regulated segment comprising the operations of LG&E and KU Energy LLC, which owns and operates regulated public utilities; the Pennsylvania Regulated segment comprising PPL Electric Utilities Corporation’s operations; and the Supply segment comprising the activities of PPL Energy Supply, LLC’s subsidiaries. What we like best about this company is two-fold. First, its capital expenditure strategy and growth is expected to lead to rate increases. Secondly, the firm’s diversification overseas. PPL runs a regulated utility in the United Kingdom. Although the U.K. division accounts for around one-third of its revenues, close to 50% of the company’s profits can be traced to the UK. Its EPS is expected to grow to $2.44 per share in 2017 from $2.36 in 2016. NextEra Energy (NYSE: NEE ) A Florida-based utility focused on the production and distribution of clean energy sources. It earned 8% in 2015 and is expected to grow at a 6-8% rate over the next 2 years. It has returned just over 14% over the last year and yields a solid 2.9%. NextEra Energy, Inc. is a holding company. The company operates through its wholly-owned subsidiaries, Florida Power & Light Company (FPL) and NextEra Energy Resources, LLC (NEER). It is an electric power company in North America with electricity generating facilities located in 27 states in the United States and four provinces in Canada. NEE’s segments are FPL and NEER. FPL is an electric utility engaged primarily in the generation, transmission, distribution and sale of electric energy in Florida. NEER owns, develops, constructs, manages and operates electric generating facilities in wholesale energy markets primarily in the United States, as well as in Canada and Spain. We firmly believe clean energy is the future. NEE earns about 40% of its profits from renewable sources and is rapidly expanding in this sector. Duke Energy Corp. (NYSE: DUK ) Duke is a $55 billion market cap utility company based in North Carolina. It conducts its operations in three business segments: Regulated Utilities, International Energy and Commercial Power. The company’s Regulated Utilities segment conducts operations primarily through Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana and Duke Energy Ohio. The company’s International Energy segment principally operates and manages power generation facilities and engages in sales and marketing of electric power, natural gas and natural gas liquids outside the United States. Its Commercial Power segment builds, develops and operates wind and solar renewable generation and energy transmission projects throughout the continental United States. Duke Energy operates in the United States and Latin America primarily through its direct and indirect subsidiaries. We love the fact that Duke has a rapidly growing renewable division. The company is the highest yielder on our list, with a 4.1% annual dividend yield. However, it is important to note that the Latin American division is planned to be spun off the right buyer. This spin-off should help reduce the uncertainty of the emerging market exposure and could be very bullish for the shares when (if) it happens. Portland General Electric Co. (NYSE: POR ) This is a $3.5 billion, Oregon-based utility yielding 3.0% and boasting a 7.8% total return over the last year. Portland describes itself as a vertically integrated electric utility company engaged in the generation, wholesale purchase, transmission, distribution and retail sale of electricity in the state of Oregon. The company also sells electricity and natural gas in the wholesale market to utilities, brokers and power marketers. Its resources consist of six thermal plants, which include natural gas- and coal-fired turbines, two wind farms and seven hydroelectric plants. Portland a resource capacity of approximately 1,389 megawatts ( MW ) of natural gas, 814 MW of coal, 717 MW of wind and 494 MW of hydro. The company has contractual rights for transmission lines that deliver electricity from its generation facilities to its distribution system in its service territory and to the Western Interconnection. It has four natural gas-fired generating facilities: Port Westward Unit 1, Port Westward Unit 2, Beaver and Coyote Springs Unit 1 (Coyote Springs). As you know, utilities are highly regulated and are only allowed to raise rates with permission. Portland has been assigned to ramp up its use of renewable energy sources. This will result in replacement and upgrades of much of its infrastructure. These upgrades will allow the company to hike rates, which, in turn, will be very bullish for the shares!