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Ding Dong: Currency Devaluation Plagues Vietnam ETF

2015 marks the fourth year in the past six that the Southeast Asian nation has intentionally weakened the dong. VNM, the lone ETF dedicated to Vietnamese stocks, is down 5.4 percent in the past week, 11.5 percent over the past month. Although VNM is not large in terms of number of holdings (it holds just 30 stocks), the ETF is levered to the Vietnamese export story. By Todd Shriber, ETF Professor China is not the only Asian country that has recently devalued its currency nor are China exchange traded funds the only ones tracking countries in the region that have been slammed by the extreme currency interventions. Vietnam, previously a prolific devaluer of its currency, the dong, is back at it again. In fact, 2015 marks the fourth year in the past six that the Southeast Asian nation has intentionally weakened the dong and was the case following prior instances of dong devaluation , the Market Vectors Vietnam ETF (NYSEARCA: VNM ) is feeling the pain. Ding Dong VNM, the lone ETF dedicated to Vietnamese stocks, is down 5.4 percent in the past week, 11.5 percent over the past month and if the support area the ETF is currently flirting with, a return to the 2013 lows is likely. Not surprisingly, VNM’s lowest levels of 2013 were seen less than 90 days after, a dong devaluation. This time around, market observers see the dong devaluation as a response to China’s similar move. The theory makes sense as a Vietnam is also an export-driven economy and central banks in such economies, particularly in Asia, will take drastic moves to defend their countries’ exporters. “The State Bank of Vietnam (SBV) devalued the dong (VND) by 1 percent against the dollar on Wednesday-its third adjustment so far this year-and simultaneously widened the trading band to 3 percent from 2 percent previously, the second increase in six days,” according to CNBC . Although VNM is not large in terms of number of holdings (it holds just 30 stocks), the ETF is levered to the Vietnamese export story because it allocates over a quarter of its weight to consumer sectors and 44.1 percent to financial services firms, the companies that are lending to other parts of the Vietnamese economy. “Having debuted in August of 2009, the fund recently celebrated its five year anniversary trading live, and as one may expect the underlying index being based on the domestic equity market of Vietnam is not incredibly deep to the limitations of the country still being on the fringe of Frontier/Emerging markets territory,” said Street One Financial Vice President Paul Weisbruch in a recent note. Intended or not, Weisbruch’s comments about Vietnam’s market status are well-timed if not prescient because the country has not been shy about its desire to earn a coveted promotion from frontier to emerging markets status from index provider MSCI. The problems with that promotion are threefold for Vietnam. First, Vietnam is not even on the list of countries MSCI is considering for such an upgrade. Second, it can takes to earn the promotion after being added to the list. Just look at Qatar and United Arab Emirates. Third, Vietnam’s heavy-handed approach to managing its currency is probably not something index providers look favorably upon. Vietnam is currently the ninth-largest country weight in the iShares MSCI Frontier 100 ETF (NYSEARCA: FM ) at a weight of almost 3.5 percent. Home to heavy weights to two OPEC members, Kuwait and Nigeria, and several other major oil producers, FM is off almost 10 percent this year. That is to say further weakness from Vietnamese equities will not be welcomed by this ETF, either. VNM had a P/E ratio of just over 15 at the end of July , which is a slight discount to FM and a noticeable premium to the MSCI Emerging Markets Index. Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) 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.

An International ETF That Has It All (And It’s Cheap)

Investors have widely favored international exchange traded funds over U.S.-focused equivalents this year. The preference has been for developed markets funds even with emerging markets equities trading at compelling discounts. Nearly 18 percent of VXUS’s weight is allocated to emerging markets equities. By Todd Shriber, ETF Professor Investors have widely favored international exchange traded funds over U.S.-focused equivalents this year. Eight of the top 10 asset-gathering ETFs on a year-to-date basis are international ETFs while just one of the 10 worst ETFs in terms of outflows is an international fund. The preference has been for developed markets funds even with emerging markets equities trading at compelling discounts. For investors looking for exposure to both developed and emerging markets under the umbrella of a single fund, there is the Vanguard Total International Stock Index Fund ETF (NASDAQ: VXUS ) . VXUS is up almost 1.6 percent year-to-date, a performance that lags the S&P 500 and other major developed market benchmarks, but one that is also sturdy when considering the weakness in emerging markets stocks. VXUS features nearly 40 countries in its portfolio with weights ranging from 0.1 percent for four nations to 17.6 percent for Japan. VXUS “is dominated by blue-chip multinationals, which during the past few years have benefited from improving productivity, cheap financing, and exposure to faster-growing emerging markets. Most of these firms are in good financial shape. However, now that the U.S. Federal Reserve’s quantitative-easing program has ended, there is uncertainty as to how monetary policy will be managed and how it might ultimately affect global asset prices–especially considering that valuations across most major asset classes appear to be somewhat stretched,” according to a Morningstar research note . Other Advantages VXUS has some other advantages. With its wide-ranging country exposure, VXUS holds nearly 5,900 stocks across all cap spectrums. That is the deep bench strategy that is the hallmark of so many Vanguard ETFs and one that ensures the firm’s broad market ETFs offer investors all-encompassing or close to all-encompassing exposure to a region or regions. Even when adding up a popular, diversified developed markets ETF with an equivalent emerging markets fund, investors would find it difficult to get exposure to nearly 5,900 stocks. Nearly 18 percent of VXUS’s weight is allocated to emerging markets equities. The ETF tracks an index from FTSE Russell, which classifies South Korea as a developed market. Asia’s fourth-largest economy is 2.9 percent of VXUS. Another VXUS perk, and it is one Vanguard investors are familiar with, is a low expense ratio. VXUS charges just 0.14 percent per year, or $14 per $10,000 invested. Europe looms large in VXUS with developed and emerging European countries combining for over 47 percent of the ETF’s weight. “At this time, the European Central Bank is doing whatever it can to preserve the European Union and prevent the eurozone from going into a deflationary spiral. During the past few years, European equities, as measured by the MSCI Europe Index, have recovered from 2012 lows. However, this rally was muted for investors in this fund because of the falling euro against the U.S. dollar. The MSCI Europe Index, in U.S. dollars, returned 7.6% in the two-year period through July 2015; in local currencies, the index returned 13.2%,” said Morningstar. Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) 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.

3 ETFs Propelled By Japan’s Recession Recovery

Japan has emerged from its recession following good but not great economic data from the last quarter of the year where the economy expanded at an annualized rate of 2.2. Many economists forecasted an expansion of 3.7 percent; however emerging from its recession is undoubtedly a step in the right direction for Japan. The two-year stimulus package currently underway has started to bring life back into a struggling Japanese economy and will likely continue to propel it forward in 2015. By Matthew McCall Japan has emerged from its recession following good but not great economic data from the last quarter of the year where the economy expanded at an annualized rate of 2.2 percent. The gain comes after contracting the two previous quarters, which sent the county into a recession (by definition). Many economists forecasted an expansion of 3.7 percent; however emerging from its recession is undoubtedly a step in the right direction for Japan. Prime Minister Shinzo Abe implemented his ‘Abenomics,’ which has consisted of the Bank of Japan injecting large amounts of money into the economy as well as buying government bonds and other assets to spur spending within the economy. Corporate profits are at record highs and the continued devaluation of the Japanese yen will help the country’s largest manufacturers increase exports. The two-year stimulus package currently underway has started to bring life back into a struggling Japanese economy and will likely continue to propel it forward in 2015. Highlighted below are three ETFs that have been affected by the positive news out of Japan in recent weeks. The iShares MSCI Japan ETF (NYSEARCA: EWJ ) follows 311 publicly-traded Japanese companies across 11 industries. The top sectors consist of consumer discretionary at 23 percent, industrials at 19 percent, and financials also making 19 percent. The top individual holdings include: Toyota Motor Corp (NYSE: TM ) with a 6.6 percent weighting, Mitsubishi Financial Group Inc (NYSE: MTU ) at 2.8 percent, and Softbank Corp ( OTCPK:SFTBY ) coming in at 2.1 percent. The ETF is down up 4 percent over the last 12 months and up 1 percent over the last six months. Since bottoming out in the first week of the New Year it is up almost 11 percent. EWJ has an expense ratio of 0.49 percent. The WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) consists of 324 Japanese companies as well as 25 short currency contracts on the yen against the U.S. dollar. The strategy eliminates the exposure to fluctuations between the yen and greenback while providing exposure to Japanese equities. The top holdings in the ETF are: TM at 5.7 percent, MTU with a 5 percent holding, and Canon Inc. (NYSE: CAJ ) coming in at 3.8 percent. DXJ is up 10 percent over the last 12 months, and 5 percent over the last six months. Since bottoming out in the first week of January the ETF has rallied 11 percent. The ETF has an expense ratio of 0.48 percent. Investors should be aware that a hedging strategy could be a doubled-edged sword. The ETF will capitalize on both the rising equities and the falling yen in Japan, but on the flip side the ETF will be negatively affected by falling equities and a rising yen. The WisdomTree Japan SmallCap Dividend ETF (NYSEARCA: DFJ ) is made up of 605 small cap Japanese companies across eight sectors; with industrials at 25 percent and consumer discretionary at 24 percent being the most weighted sectors. The top individual holdings include: Kaken Pharmaceuticals Co Ltd with a 0.8 percent holding, Sanrio Co Ltd ( OTCPK:SNROF ) making up 0.7 percent of the ETF, and Nishi-Nippon City Bank Ltd coming in at 0.7 percent as well. DFJ is up 3 percent over the last 12 months and down 4 percent over the last six months. Since early January the ETF has gained 9. The ETF has an expense ratio of 0.58 percent. Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.