Tag Archives: calendar

5 ETFs To Watch In March

After a horrendous sell-off in the first two months of 2016, the third month started on a solid footing with Wall Street seeing the best day in a month . Losers turned leaders as the downtrodden financial and tech stocks ricocheted on cues of an improving U.S. economy. Impressive U.S. factory and construction data were behind this newfound optimism. While the S&P 500 gained about 2.4% and Dow Jones Industrial Average added over 2.1%, about a 4% spike in Apple (NASDAQ: AAPL ) shares led the Nasdaq Composite to return about 2.9%, making March 1 the best day on the bourses since August 2015. So far this year, both the S&P 500 and the Dow Jones indices are down 3.2% each while the Nasdaq Composite is off 6.4%. In any case, March is historically known for stellar returns. The average return of the S&P 500 was 1.06% in March, from 1950 to 2015. There were 42 years of a green March while returns were in the red only in 24 years. As per moneychimp.com , only December, April and November beat out March in terms of returns. Of course, deep-rooted concerns over global growth worries and oil price declines can’t be ignored. But with such a heavy sell-offs suffered year to date, chances are high that this March will finally see some relief and end in the green. Whatever be the case, investors might want to know about the ETF areas that are best suited for the month. For them, below we highlight a few ETFs – some that offer safety and others that have the potential to grow in this rocky environment. Market Vectors Preferred Securities ex Financials ETF (NYSEARCA: PFXF ) Since a flight to safety has put a lid on bond yields, investors’ thirst for yield can be satiated by investing in preferred stock ETFs. These are hybrid securities having the characteristics of both debt and equity. The preferred stocks pay stockholders a fixed, agreed-upon dividend at regular intervals, like bonds. Even if rates rise, an extremely strong yield will allow investors to beat out the benchmark Treasury yields. The preferred stock fund – PFXF – is heavy on REITs (33.5%) and Electric (22.5%) industries. The fund is up 2.2% year to date (as of March 1, 2016) while its 30-Day SEC yield is 6.26%. PowerShares Dynamic Building & Construction Portfolio ETF (NYSEARCA: PKB ) The industrial sector enjoys a seasonal benefit in March. Also, the space gained investors’ attention afresh after a reading of the U.S. manufacturing sector impressed investors to start the month. If this was not enough, U.S. construction spending expanded to the highest level since October 2007 . All these put this construction ETF in focus. The fund has considerable exposure in homebuilding, which is another surging sector. PKB is down 4.2% so far this year, but added over 6.8% in the last one month. PKB has a Zacks ETF Rank #2 (Buy). PowerShares KBW Property & Casualty Insurance ETF (NYSEARCA: KBWP ) Since upbeat U.S. data once again sparked off rate hike talks, 10-year Treasury bond yields jumped 9 bps in a single day to 1.83% on March 1. If the trend continues, financial and insurance ETFs would benefit. While the financial sector is presently facing issues with the potential default in the energy sector, we are banking on this insurance ETF. KBWP with a Zacks #2 ETF is down 2% year to date, but added 2.7% in the last one month. WisdomTree Emerging Markets Equity Income ETF (NYSEARCA: DEM ) Investors should note that the emerging markets are making a comeback. Though their fundamentals are not too sound, cheaper valuation is probably the key to their recent success. Via DEM, investors will get exposure to the emerging markets and simultaneously enjoy strong dividend income of about 5.36% annually. Even if the fund succumbs to a sell-off, this market-beating yield would make up for the capital losses to a large extent. The fund is heavy on Taiwan (24.7%) and China (14.1%). DEM is up 1.2% so far this year. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk. Victory CEMP US Small Cap High Dividend Volatility Weighted Index ETF (CSB) Risk-on sentiments, though still to be full-fledged, are back in the market. Hence, U.S. small-cap equities and ETFs are likely to gain ground. However, we would suggest investors to practice a defensive approach even in this segment. It’s better to go for an ETF like CSB, which consists of the highest 100 dividend yielding stocks of the CEMP US Small Cap 500 Volatility Weighted Index. After choosing the highest dividend yielding stocks, these are weighted on their standard deviation (volatility). Probably due to this quality exposure, this small-cap ETF has lost just 0.6% in the year-to-date frame (when small-caps are being thrashed). In the last one month, the fund added 5.4%. Original Post

How To Play The Choppy Market With Cheap Smart Beta ETFs

The global stock market has been shaky, with a series of woes related to China and oil price. While the number of headwinds is raising questions on the health of the global economy, domestic growth seems to be on track with a spate of encouraging data lately. Amid heightened volatility and uncertainty, investors are seeking some smart stock selection strategies to alleviate the risks in the market. One such strategy is smart beta, which seeks to deliver better risk-adjusted returns, and has the potential to outperform the market even in turbulent times, while keeping the cost low. This strategy has been gaining immense popularity in recent years given its unique features and incredible stock selection methodology. As per PowerShares , smart beta is the fastest-growing segment of the ETF industry, with a staggering growth of 21% over the past three years. It currently accounts for 12% of the total ETF industry (see all the ETF categories here ). Why Smart Beta? The smart beta strategy helps to capture market inefficiencies in a transparent way by adding extra metrics, like dividends, volatility, revenue, earnings, momentum, equal weight and other fundamental factors, to the market cap or rules-based indices. It often closes the gap between passive and active investing. Also, it takes specific factors from the active management universe at a lower cost and instills it in a passive listed fund. As a result, the smart beta strategy offers the best of both active and passive strategies, providing investors an opportunity to increase portfolio diversification, reduce risk and enhance returns (alpha generation) over time. While the promise of smart beta is great, the strategy has certain drawbacks, including concentration issues, higher turnover and lower trading volumes. Though backtest results showed their outperformance over longer periods, the strategy could lag during a specific time period or in a particular economic cycle. Still, investors could earn above-average returns by selecting the right ETFs according to the market conditions or trends. Smart Beta ETFs in Focus The space is crowded with a variety of products, including the simplest equal-weighting, fundamental-weighting and volatility/momentum-based weighting methodologies. However, dividend ETFs are the primary drivers of smart beta growth this year, followed by low volatility and value factor. As such, we have highlighted four smart beta ETFs that are suitable for investors in the current choppy market and are low-cost choices in their specific fields. PowerShares S&P 500 High Dividend Portfolio ETF (NYSEARCA: SPHD ) The lure of dividend ETFs is back, as yields are at lower levels and volatility is at its peak. While there are several smart beta ETFs targeting dividend investing, SPHD could be an excellent choice. This fund follows the S&P 500 Low Volatility High Dividend Index and holds 50 securities, which have historically provided high dividend yields and low volatility. It is widely spread out across individual securities, as each holds less than 3.7% of assets. From a sector look, financials takes the top spot at 20.5%, while utilities, industrials and consumer discretionary round off the next three with a double-digit exposure each. The fund has so far managed assets worth $811.8 million, while volume is solid, trading at around 256,000 shares per day. The expense ratio came in at 0.30%. iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) Given the high level of volatility, investors could be well protected with USMV. This is the largest and most popular ETF in the low volatility space, with AUM of $9.7 billion and average daily volume of 2.6 million shares. It offers exposure to 169 U.S. stocks having lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. The expense ratio comes in at 0.15%. The fund is well spread across a number of components, with each holding less than 1.7% share. From a sector look, financials, healthcare, consumer staples and information technology occupy the top positions, with double-digit exposure each. The fund has a Zacks ETF Rank of 2 or “Buy” rating with a Medium risk outlook. iShares MSCI USA Quality Factor ETF (NYSEARCA: QUAL ) Though the chance of rate hikes this month faded out given the ongoing financial instability, a slew of encouraging data lately points to a rate hike sometime later this year, putting the spotlight on quality ETFs like QUAL. This fund tracks the MSCI USA Sector Neutral Quality Index and provides exposure to the stocks with positive fundamentals, like high return on equity, stable year-over-year earnings growth and low financial leverage. This results in a basket of 123 securities that are pretty spread across a number of sectors and securities, with none holding more than 5.11% of assets. Information technology, financials, healthcare and consumer discretionary each accounts for double-digit exposure. The product has amassed more than $2 billion in its asset base and charges just 15 bps in annual fees from investors. However, average trading volume is solid, at more than 295,000 shares per day. SPDR Russell 1000 Momentum Focus ETF (NYSEARCA: ONEO ) With the receding fears of a recession in the U.S., investors could tap the upcoming stock rally with this momentum ETF. This fund provides exposure to the large cap U.S. stocks having a combination of core factors (high value, high quality and low size characteristics) with high momentum characteristics. This is easily done by tracking the Russell 1000 Momentum Focused Factor Index, and the approach results in a broad basket of 908 securities that are widely diversified, with none holding more than 0.83% of assets. Consumer discretionary takes the top spot at 20.2%, while producer durables and financial services round off the next two spots with double-digit exposure each. ONEO is new to the space, having accumulated $319.5 million in its asset base within three months. It charges a lower fee of 20 bps per year and trades in solid volume of around 148,000 shares. Original Post

5 Economic Charts Help Investors Understand Trump And Sanders

Investors should be capable of asking a very simple question: If the domestic economy is performing admirably, why are Americans fed up with established politicians on both sides of the aisle? On the Democrat side, a 74-year old white male who admires socialism has inspired more voters than the prospect of the first female president in the country’s history. In the Republican corner, an unconventional billionaire and self-proclaimed wave maker has promised to restore America to greatness – he is trouncing competition on the nationalistic notion that America has lost its five-star status. Along these lines, Real Clear Politics reports that two-thirds (66%) of the electorate believe the country is on the wrong track. Only 28% believe the country is moving in the right direction. It follows that the anti-establishment allure of socialism and nationalism tends to thrive when a country’s economy is frail. Of course, many insist that the U.S. economy is in fine shape with admirable job gains, a vibrant consumer and a healthy business segment. The problem with the assertion? The last 15 years of data portray a very different picture. For example, since 2000, fewer and fewer Americans enjoy home ownership – therefore, fewer and fewer benefited from surging real estate prices on ever-decreasing borrowing costs. Similarly, fewer Americans in the prime age demographic (25-54) are participating in the labor force. For all the “pleasant chatter” about low unemployment, millions and millions of working-aged citizens are no longer being counted or compensated. Along these lines, here are five economic charts that investors might want to consider when deciding upon their asset allocation in a contentious election year: 1. American Households Owe… Big Time . Total household debt hit $12.1 trillion in the fourth quarter of 2015. That’s only a fraction below the all-time record of $12.7 trillion reached in the third quarter of 2008. Between the first quarter of 2003 and the third quarter of 2008, debt grew at an astonishing pace of roughly 74%. That bears repeating. Total household debt rocketed 74% in just five-and-a-half years. Since the debt surge occurred at a time when the Federal Reserve was raising its overnight lending rate – since it occurred when the 30-year mortgage remained in a relatively stable range of 5.75%-6.75% – debt servicing became increasingly difficult. Debt servicing became near impossible when wages did not rise as quickly and when home prices stopped appreciating. It killed the “cash-out refi” game. And the Great Recession wasn’t far behind. One would think that a lesson had been learned about the insidious nature of debt. And yet, instead of deleveraging to reduce overall debt obligations, households have taken the Federal Reserve’s ultra-low interest rate bait. Can households service their debts better when a 30-year mortgage is closer to 4% than when its closer to 6%? All things being equal… yes. Sadly, the capacity to service mortgages and other debts is not merely a function of current rates, but also a function of future rates, household income and cost of living adjustments. It follows that when household income growth only amounts to 26% since 2003 – when real income adjusted for inflation actually declines (e.g., soaring medical costs, rising food prices, etc.) – the 66% surge in total debt since 2003 takes on unsavory dimensions. Why? The Federal Reserve may once again create circumstances where borrowing costs either rise or remain range-bound at a time when inflation-adjusted wages stagnate and home prices cease to climb. Once again, households would struggle to service their debts. 2. Americans Earn Less Than They Did In 2000 . Imagine working your tail off for the last 15 years. Your household income on a nominal basis is higher than it was back then, but your money does not buy what it did at the start of the 21st century. Are you going to feel that the country is on the right path? Are you going to believe those who trumpet 2% annualized gross domestic product (NYSE: GDP )? On an inflation-adjusted basis, middle class households today are taking home somewhere in the neighborhood of $56,746 per year. That is less than it was at the inception of the financial collapse ($57,798). Even more disturbing? Households are bringing home less real income than they did after the recession in 2001-2002 ($57,905). No growth in household income since 2000 and a whole lot of growth in household debt. Thank the powers that be for ultra-low interest rates, right? 3. Millions Priced Out Of The Home Ownership Dream . Twenty years ago, extraordinary stock market gains and genuine labor force participation growth in high quality, high paying jobs made Americans feel more wealthy. Households began trading up, while first time home-buyers flush with cash entered the real estate market. There was more. In 1995, government regulators created new rules for determining whether a bank was meeting the standards of the Community Reinvestment Act (NASDAQ: CRA ). Banks now had to prove that they were making enough loans to low- and moderate-income borrowers. Suddenly, home-ownership rates began skyrocketing. There was a minor flattening out period during the tech wreck of 2000 and the 2001-2002 recession. However, with the Fed slashing overnight lending rates to 50-year lows, the precipitous drops in mortgage rates, as well as the existence of “no documentation”/”negative amortization” loans, home-ownership rates kept right on ascending. Click to enlarge Real estate sales peaked near 2005, prices peaked by the end of 2006. And the “fit hit the ceiling fan” by 2007. Since June of 2009, however, the U.S. economy has been expanding. One might have expected home-ownership rates to rise or level out. Instead, fewer Americans own homes (on a percentage basis), whether it is attributable to stagnant inflation-adjusted income or higher property prices or unfavorable debt-to-income ratios. Keep in mind, this trend is happening alongside record-low mortgage rates. It does not require a leap of faith to suggest that millions of additional renters contribute to economic angst and a dissatisfied electorate. 4. Employment Growth Is Slower Than Population Growth . U-6 Unemployment at 9.9% is far higher than the 8.5% U-6 Unemployment at the onset of the Great Recession in November of 2007 – the 9.9% unemployment rate is actually on par with how Americans felt AFTER the 2001-2002 recession, when U-6 lingered around 10%. In essence, the jobs picture has only recovered to a place that is similar to recessionary times (10%), as opposed to non-recessionary times (8.0%-8.5%). On the one hand, there’s reason to be pleased with the progress of bringing U-6 Unemployment back from 17% at the worst of the Great Recession. On the surface, then, progress is certainly progress. The difficulty in declaring victory in the jobs arena is the fact that nearly one out of five 25-54 year-olds who are actively looking for work remain unemployed. Specifically, we have an 81% participation rate in the key 25-54 demographic. This participation rate is far more dismal than it was during the 2001-2002 recession – it is not even as strong as the 83%-83.5% participation during the Great Recession. In sum, payroll growth that averages 200,000 per month can pull down an unemployment rate. Yet it is insufficient with respect to a population that is growing at a faster clip. That is, companies hire only enough to keep up with modest demand whereas discouraged workers in the labor force are stuck as “extras” in the growth of the population. They’re missing, they are not counted. Can you blame Americans for feeling that there aren’t enough job opportunities for them? 5. The Government’s Debt Is Our Burden . The national debt recently surpassed $19 trillion. Implicitly, Americans understand that there is something very wrong with the number. If it was $6 trillion at the start of the century, and it was $9 trillion near the end of 2007 when the Great Recession began, then how can the country’s economy be humming if it needed $10 trillion of stimulus to get it humming? According to U.S. Debt Clock at USdebtclock.org , the debt each citizen owes is close to $59,000. The average household – not the average person – brings in approximately $57,000. Try to imagine having a credit card balance that is larger than your income stream. (And that’s for a family of 1!) A four-person household might bring in $57,000, yet owe $236,000. Crazy, right? Well, some estimates may be a little more friendly by removing the Federal Reserve’s ownership of U.S. Treasuries from the equation. The way the graphic below presents it, each child born today has an obligation of $42,759. Straight Outta Nutsville. Naturally, you’re free to believe that the federal debt simply does not matter because low interest rates make it possible for the Federal government to service its debt obligations. And you’re free to decide that America just needs to keep paying the interest – we don’t actually have to pay the debt back in its entirety. In fact, worse case scenario, the Federal government can just print money like the Federal Reserve did with its electronic credits in quantitative easing (QE). Fair enough. Still, there comes a point when rates cannot truly be lowered much further. Even negative interest rates would have a lower bound. The implication? Lower percentages of participation in the labor force, record debt levels at the household level as well as the federal level, stagnant wages and declining home-ownership are tell-tale signs of economic trouble. Americans feel it… that’s why many have chosen to support Bernie Sanders or Donald Trump. The stock market has been feeling it too. On the one hand, investors have been breathing a sigh of relief that the S&P 500 SPDR Trust (NYSEARCA: SPY ) has come back out of correction territory. How bad can things really be if SPY is a stone’s throw from record highs? Yet most investors recognize that a pragmatic fear of higher borrowing costs, a realistic concern about the potentially toxic debts of commodity companies, a lack of wage growth for consumers and the potential for the world economy to drag on the domestic scene have combined to create volatile price swings. What’s more, these things provide perspective on the popularity of political outsiders like Sanders and Trump. 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.