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3 High Yield ETFs That Must Be On Your Radar

The high yield landscape has been a difficult one to navigate over the last year. The pernicious selling in commodities combined with a rocky road for stocks has led to sliding prices in junk bonds, master limited partnerships, and mortgage REITs. These asset classes have been pilloried for luring in yield-seeking investors, only to have the rug pulled out from under them as credit conditions deteriorated. Hopefully an important lesson has been learned – the higher the yield, the higher the risk of capital invested. Those that were burned the worst may be taking the tact of avoiding these sectors altogether . However, monitoring exchange-traded funds that track high yield indexes can be a useful endeavor. They can often provide insight into underlying stock market or debt dynamics as well as serve up trading opportunities showing relative value characteristics. Let’s delve into some of the most important high yield ETFs that should be on your radar. iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA: HYG ) HYG is the largest high yield bond ETF with $16.7 billion in total assets. This passively managed index fund owns nearly 1,000 corporate bonds of companies with below-investment grade credit ratings. These types of fixed-income instruments are often referred to as “junk bonds” because of their lower quality credit fundamentals. Investors who own a basket of junk bonds like HYG are nominally compensated for the higher risk by receiving a much higher yield than Treasuries or investment-grade corporate bonds. HYG currently has a 30-day SEC yield of 6.96% and income is paid monthly to shareholders. A peek at the chart below shows how HYG broke below its 200-day moving average nearly nine months ago and has been in a persistent down-trend ever since. This ETF was down over 20% from high to low, but managed to claw its way back from the abyss during the February and March rally in risk assets. The important question now is whether HYG is consolidating for another push higher or is it getting ready to rollover once again? The most bullish scenario would be a tight range of consolidation followed by a confirmed breakout to new recovery highs above the downward sloping 200-day moving average. This would likely need to coincide with further strength in broad stock market indices such as the SPDR S&P 500 ETF (NYSEARCA: SPY ). If we start to see SPY and other stock market bellwethers roll over again, then it could easily lead to a retest of the February lows for HYG. Many investors believe in the adage that “credit leads equities”. As a result, these two asset classes will likely experience a similar fate through the remainder of 2016. Alerian MLP ETF (NYSEARCA: AMLP ) Another well-known proxy of income and credit risk that is closely tied to the commodity markets are master limited partnerships (MLPs). AMLP tracks an index of the 25 largest and most liquid MLPs. These companies provide infrastructure, storage, and pipeline use for large oil and gas companies in the energy sector. The unique tax structure of MLPs allows them to pass on a large percentage of their profits to shareholders in the form of dividends. Thus, these stocks are often prized for their above-average yields. AMLP sports a yield of 11.28% based on its most recent quarterly dividend and current share price. This ETF has experienced a decline similar to junk-bond related indexes, which has been exacerbated by the downtrend in oil and natural gas prices. Similar to oil, this fund is off its lows for the year, but has been unable to regain positive territory for 2016. I believe that this index will continue to demonstrate a high correlation with the energy markets over the next several years. Another factor to the MLP story will be credit conditions , as many of these companies rely heavily on access to debt markets and other funding sources. Keep these factors in mind if you are considering investing in this ETF. It may be a long road ahead to regain sustainable momentum and volatility will likely be a key risk. iShares Mortgage Real Estate Capped ETF (NYSEARCA: REM ) If you are aggressive enough to seek out funds offering a double digit yield, then you have likely heard of REM. This ETF tracks an index of 38 mortgage REITs in the residential and commercial lending sectors. Mortgage REITs are characterized by their lofty dividends as a result of embedded leverage and low borrowing costs. REM is a very focused strategy that is arranged in a market-cap weighted methodology. As a result, the top holdings make up a significant portion of the underlying asset base. This includes significant exposure to Annaly Capital Management (NYSE: NLY ) and American Capital Agency REIT (NASDAQ: AGNC ). REM currently has a 30-day SEC yield of 12.30% and income is paid quarterly to shareholders. It’s easy to see how investors can be lured into mortgage REITs by the tremendous yields. However, the volatility and risk that is associated with maintaining that dividend is often overshadowed. This ETF has also traced a path similar to high yield bonds over the last 12 months and has just recently experienced a sharp rebound. Future price action in this ETF is likely going to be governed by a combination of factors including real estate fundamentals, credit trends, and overall appetite for risk in aggressive income assets. Keep in mind that ETFs with high sensitivity to credit risk are best purchased during periods of duress in order to capitalize on their relative value to high quality fixed-income. Furthermore, these tools will require heightened vigilance in order to take advantage of their volatile nature. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: David Fabian, FMD Capital Management, and/or clients may hold positions in the ETFs and mutual funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell, or hold securities.

5 ETFs To Buy If Oil Stays At $40

Finally, oil jolted higher in the April 8 week to near $40/barrel, snapping a drawn-out downtrend. The WTI crude oil fund, the United States Oil ETF (NYSEARCA: USO ), added about 7.5% in the last five trading sessions (as of April 8, 2016), and Brent crude oil fund, the United States Brent Oil ETF (NYSEARCA: BNO ), tacked on about 8.1% gains during the same time frame. The impressive gains were prompted by the impending OPEC-Russia meeting in Doha on April 17 to talk about an output freeze and a decline in U.S. stockpiles. As per the U.S. Energy Department’s weekly inventory release, crude stockpiles reported a surprise reduction from their all-time high levels. The report released last week showed that crude inventories fell by 4.94 million barrels for the week ending April 1, 2016, beating the expectation of a rise in inventory by 2.9 million barrels . While many are not too hopeful about a game-changing outcome at the Doha meeting, the fact is that inventory levels are finally declining . U.S. energy firms used a lesser number of oil rigs for the third successive week to touch ” the lowest level since November 2009″. If this is not enough, the demand scenario should improve in the days ahead on easy money policies in most developed countries. Since the oil patch has been under pressure since mid-2014, the time of rebalancing should approach fast. Added to this, the U.S. dollar is expected to remain benign for a few more days, as the Fed is in no hurry to hike interest rates. This, in turn, should buoy most commodity prices, including oil. Given the newfound optimism in the oil patch, many investors have turned bullish on the energy sector. While playing oil ETFs is always an option, there are other corners as well that are linked to the commodity oil and are likely to bounce back along with the oil price. Below, we highlight five mixed ways which could be profitable if oil price hovers around the $40 level. Leveraged Oil – Direxion Daily Energy Bull 3x Shares ETF (NYSEARCA: ERX ) This fund creates a triple (3x or 300%) leveraged long position in the S&P Energy Select Sector Index while charging 95 bps in fees a year. It is a popular and liquid option in the energy leveraged space with AUM of $507.6 million and average trading volume of 6.2 million shares. The ETF gained 6.8% in the last five trading days (as of April 8, 2016) and added about 6.2% on April 8. Energy E&P – SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP ) This fund holds 60 oil & gas exploration and production stocks in its portfolio. It is well-diversified across its holdings, with none of the companies accounting for more than 2.25% of total assets. The ETF has been able to manage $1.93 billion in its asset base. It charges 35 bps in annual fees and expenses. The product gained 5.2% in the last five trading days and was up 3.7% on April 8. It has a Zacks ETF Rank #5 (Strong Sell) (see all energy ETFs here ). Russia – Market Vectors Russia ETF (NYSEARCA: RSX ) The Russian economy may not be in a great shape, having shrunk 3.7 % in 2015. But an oil price recovery could bring good luck to Russia investing. Oil is seemingly the main commodity of the nation, and thus, drives the economy’s revenue to a great extent. RSX is the most popular and liquid option in the space, with an asset base of $1.90 billion and average trading volume of more than 13 million shares a day. The energy sector accounts for about 40% of RSX, which charges 61 basis points in expense fees. The Zacks ETF #3 (Hold) fund advanced about 0.9% in the last five trading days (as of April 8, 2016) and added about 2.5% on April 8. Norway – Global X MSCI Norway ETF (NYSEARCA: NORW ) Norway is among the top 10 nations among oil exporters, and the commodity forms an integral part of the country’s GDP. The most popular way to play the country is with NORW. The product charges investors 50 basis points a year in fees. Norwegian oil giant Statoil (NYSE: STO ) accounts for about 15% of the portfolio alone, suggesting a heavy concentration. NORW added 2.8% on April 8, 2016. The fund has a Zacks ETF Rank #3. Canada – iShares MSCI Canada ETF (NYSEARCA: EWC ) Canada is also among the world’s top oil producers. The best way to invest in Canada is through EWC, a product that has nearly $2.59 billion in assets. The fund holds just under 95 stocks in its basket. Energy makes up a huge chunk of its assets, accounting for one-fifth of the total. The fund was off about 0.4% in the last five trading sessions, but returned about 2.1% on April 8. It has a Zacks ETF Rank #3. Original Post

Top 4 Asia-Pacific Mutual Funds To Branch Out Your Portfolio

The U.S. stock markets are put off by discouraging valuations while Europe is under the burden of ageing economies. Europe is also struggling to cope with the migration crisis and repeated terrorist attacks. In this world where returns are hard to come by, Asia-Pacific should figure in the list of investable regions. Investing in funds exposed to such a region will help balance your portfolio across developed, emerging and frontier markets. This diversification across a heterogeneous spread of economies will eventually protect one’s moolah in today’s tumultuous economic scenario. Moreover, the Asia Development Bank (ADB) reported that growth in Asia is expected to be more than 5% this year. This is a strikingly positive outlook, given that global growth is averaging slightly more than 3% a year. Growth in the pacific sub region is also anticipated to be around 3.8% this year. Among the major economies, China showed signs of improvement, while India is likely to drive growth in Asia. Bank of Japan’s Governor Haruhiko Kuroda also assured investors that Japan’s economy is on a moderate recovery trend despite coming under substantial pressure from a rising yen against the U.S. dollar. China Resilient, India to Bolster Growth China’s factory indicators point to a pickup in the economy supported by greater stability in the yuan and a rise in its stock markets. After eight consecutive months of decline, China’s official manufacturing PMI came in at 50.2 in March. Any reading above 50 indicates expansion. A separate indicator, the private Caixin manufacturing PMI, rose to 49.7 in March from 48.0 in February. In spite of being below 50, it turned out to be the index’s highest reading in the past 13 months. China’s service sector also expanded last month, which bodes well for a country striving to transform into a consumer-driven economy in the long term. China’s official non-manufacturing PMI rose to 53.8 in March from 52.7 in February. Consumer sentiment too rose sharply in March. The Westpac MNI China Consumer Sentiment Indicator jumped 6.1% to 118.1 in March, its highest level since Sep 2015. Meanwhile, India’s economic growth is expected to be 7.4% this year, according to the ADB. Even though the growth rate has been slashed, the pace is still healthy when compared to other economies of the world. ADB further added that with more foreign direct investment in the economy along with strong corporate balance sheets, the nation will be able to maintain the growth level. With more reforms in the way, the country is expected to grow much stronger. RBI Governor Raghuram Rajan had said that the “Indian economy is currently being viewed as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude.” How Did Asia-Pacific Mutual Funds Fare? Among the major funds that are exposed to the Asia-Pacific region, most of them have fared exceedingly well in the last three months. During this span, funds such as Columbia Pacific/Asia A (MUTF: CASAX ), Fidelity Pacific Basin (MUTF: FPBFX ), Matthews Asia Dividend Investor (MUTF: MAPIX ), Matthews Asia Growth Investor (MUTF: MPACX ), Invesco Pacific Growth A (MUTF: TGRAX ) and Wells Fargo International Value A (MUTF: WFFAX ) gained 4.9%, 5.8%, 7.5%, 5.1%, 3.7% and 2.1%, respectively. Standard deviation of all these funds for the one-year period ending on March 31, 2016, also turned out to be less than the MSCI AC Asia Pacific Index’s standard deviation of 17.8%. There is no guarantee that even the most well-managed fund will give steady returns. However, these funds showing low standard deviation indicate a long track record of consistent returns. 4 Asia-Pacific Mutual Funds to Buy As mentioned above, just as the major economies in the Asia-Pacific region are showing signs of stability, the foremost funds are also giving healthy and consistent returns. Hence, investment in mutual funds that focus on the Asia-Pacific region can be a good choice. This corner of the world has some of the world’s most varied and economically vibrant countries. As a result, you can balance out your portfolio by investing across developed and emerging financial markets in the Asia-Pacific region. For now, we have selected 4 Asia-Pacific mutual funds that have given positive 3-year annualized returns, carry a low expense ratio, have minimum initial investment within $5000 and possess a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). T. Rowe Price New Asia (MUTF: PRASX ) normally invests a large portion of its net assets in Asian companies (excluding Japanese companies). PRASX’s 3-year annualized return is 0.6%. Annual expense ratio of 0.94% is lower than the category average of 1.50%. PRASX has a Zacks Mutual Fund Rank #2. Matthews Asia Dividend Investor seeks to achieve its investment objective by investing the majority of its net assets in dividend-paying equity securities of companies located in Asia. MAPIX’s 3-year annualized return is 3.3%. Annual expense ratio of 1.05% is lower than the category average of 1.34%. MAPIX has a Zacks Mutual Fund Rank #2. Fidelity Pacific Basin invests a major portion of its assets in securities of Pacific Basin issuers and other investments that are tied economically to the Pacific Basin. FPBFX’s 3-year annualized return is 6.8%. Annual expense ratio of 1.17% is lower than the category average of 1.34%. FPBFX has a Zacks Mutual Fund Rank #1. Columbia Pacific/Asia I (MUTF: CPCIX ) invests a major portion of its net assets in equity securities of companies located in Asia and the Pacific Basin, which includes India. CPCIX’s 3-year annualized return is 2.6%. Annual expense ratio of 1.04% is lower than the category average of 1.34%. CPCIX has a Zacks Mutual Fund Rank #2. Original Post