Tag Archives: china

Time For Buy-Write ETFs?

The year 2016 saw an appalling start on the bourses as last year’s headwinds spilled over this year with deepening woes. This is especially true as the world’s second-largest economy is not showing any sign of reviving anytime soon and the global oil market continues to be overloaded. These two issues have been thwarting global economic growth and raising threats of deflation (read: 5 ETF Plays for a Bear Market ). In fact, both the World Bank and International Monetary Fund (IMF) downgraded their projection for world economic growth. The World Bank cut its growth forecast to 2.9% for this year from 3.3%, while IMF expects the global economy to grow 3.4% this year, down 0.2% from its previous estimate. Moreover, IMF warned that the global economy is on the verge of another financial meltdown. The World Bank stated that persistent weakness in China and a worse-than-expected slowdown in Brazil and Russia have worsened an already bleak global economic outlook. Further, on the domestic front, weak Q4 corporate earnings, a strong dollar, uncertain timing on the next interest rates hike and a spate of weak economic data are weighing heavily on investors’ sentiments. In particular, the U.S. economy grew at a slower pace of 0.7% in the fourth quarter after having advanced 2% in the third quarter and 3.9% in the second. With this, the rate of economic expansion in 2015 is the same as that of 2.4% in 2014. In such a sluggish backdrop, investors are looking to provide capital appreciation opportunities in the equity world with simultaneous downside protection. A gainful option for now could be the ‘Buy-Write’ strategy. Buy-Write Strategy in Focus A buy-write is an option strategy that involves buying a stock or a basket of stocks and then selling or writing call options on those same assets. With this process, the portfolio aims to generate additional monthly income from the call option (premiums collected). If the product stays flat or declines slightly, investors keep the premium and their stock. However, if prices rise, investors only receive the premium and the stocks are sold at the price that was agreed upon on the covered call. As such, the products would probably underperform in bull markets, as this strategy eats away the potential gain especially in a short time frame. However, investors seeking to make a play on the broad U.S. equity indices using this strategy could consider the following ETFs (read: 6 Quality Dividend ETFs for Safety and Income ): PowerShares S&P 500 BuyWrite Portfolio ETF (NYSEARCA: PBP ) This fund tracks the CBOE S&P 500 BuyWrite Index, which measures the performance of a hypothetical buy-write strategy on the S&P 500 Index. This strategy includes holding a long position of the stocks in the S&P 500 and selling a succession of covered call options, each with an exercise price at or above the prevailing price level of the S&P 500 Index. The fund has amassed $314.6 million in AUM and trades in average daily volume of nearly 180,000 shares a day. The product is a bit pricier than the other choices, charging 75 bps in annual fees. The ETF has an annual yield of 2.34% and has shed 5.8% so far this year. Horizons S&P 500 Covered Call ETF (NYSEARCA: HSPX ) This ETF seeks to match the performance of the S&P 500 Stock Covered Call Index, which holds a long position in the stocks of the S&P 500 Index while at the same time, short (write) call options on option-eligible stocks in the S&P 500 Index. The fund has accumulated $57 million in its asset base and charges 65 bps in fees per year from investors. Volume is light as it exchanges less than 5,000 shares in hand on average daily basis. The ETF has 5.43% in annual dividends and has lost 7.7% in the year-to-date timeframe (read: Buy-Ranked Large Cap Value ETFs in Focus ). Recon Capital NASDAQ 100 Covered Call ETF (NASDAQ: QYLD ) This ETF follows the CBOE NASDAQ-100 BuyWrite Index, which is designed to buy a NASDAQ-100 stock index portfolio, and writing (or selling) the near-term NASDAQ-100 Index covered call option, generally on the third Friday of each month. The product has $30.2 million in AUM and trades in light volume of under 18,000 shares a day on average. Expense ratio came in at 0.60% and annual dividend yield is higher at 10.45%. QYLD has lost 9.7% so far this year. AdvisorShares STAR Global Buy-Write ETF (NYSEARCA: VEGA ) This fund is actively managed and looks to provide investors with consistent, repeatable returns across all types of market environments. This may be done by using a proprietary strategy known as Volatility Enhanced Global Appreciation. VEGA is primarily a fund of funds and employs a Buy-Write or Covered Call overlay for its global allocation strategy using ETPs. The ETF has amassed $20.5 million in its asset base, while trades in average daily volumes of 4,000 shares. It charges a higher fee of 2.15% a year from investors and is down 5.7% in the same time period. iPath CBOE S&P 500 BuyWrite Index ETN (NYSEARCA: BWV ) This is an ETN option and tracks the similar index as that of PBP. Unlike PBP, the ETN carries credit risk from the issuing institution – Barclays. The note is less popular and less liquid as depicted by its AUM of $9 million and average volume of under 1,000 shares. The ETN charges 0.75% in fees and expenses and has lost 6.9% in the year-to-date timeframe. Bottom Line Though these products have delivered negative returns from a year-to-date look, yields are impressive, making up for most of the losses incurred so far. As such, these are appropriate for investors seeking high levels of current income and a hedged exposure to the large cap U.S. equities. It is worth noting that the funds will lag significantly during a boom time, but will be an interesting choice in flat or declining markets, especially for investors seeking extra income in a volatile environment. Original Post

5 Market-Beating International ETFs YTD

The worries that cropped up last year intensified with the start of this year, leading to brutal trading in stocks across the globe. This is especially true as the Vanguard FTSE All-World ex-US ETF (NYSEARCA: VEU ) targeting the international equity market has lost about 5.8% from a year-to-date look compared to a loss of 5.5% for iShares MSCI ACWI Index ETF (NASDAQ: ACWI ), which targets the global stock market including the U.S. In particular, the collapse in oil price to below the 12-year lows and persistent weakness in China are the major culprits of the woeful performance. Emerging markets have been struggling while developed markets are also exhibiting slow growth amid streaks of volatility and uncertainty. The U.S. economy has also started to feel the pain of an ongoing financial instability and global growth concerns given that GDP growth came to a standstill in 2015. Notably, the global stocks had wiped out nearly $7.8 trillion in value in the first three weeks of 2016. However, the stocks rebounded at the end of the fourth week following additional stimulus hopes from the European Central Bank (ECB) to print more money and cut interest rates further. Additionally, the Bank of Japan (BoJ) propelled the stocks higher by pushing its interest rates to a negative territory. Further, oil has also gained momentum reversing some of the losses incurred in the year (read: Japan ETFs to Buy on Negative Interest Rates ). While this is true, the positive sentiments proved to be short-lived and the global stocks again started another week on a sour note. In such a weak backdrop, most of the international markets and their ETFs have been able to fight through the bearish trend and have delivered handsome returns so far this year crushing the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) . Below we have highlighted some of them: iShares MSCI Indonesia Investable Market Index Fund (NYSEARCA: EIDO ) This is the most popular ETF tracking the Indonesian market with AUM of $252.4 million and average daily volume of more than 722,000 shares. The fund tracks the MSCI Indonesia Investable Market Index, holding 87 securities in its basket while charging 64 bps in annual fees from investors. The product is somewhat concentrated on both sectors and securities. The top two firms account for at least 11% of total assets each while from a sector look financials dominates the fund’s return with more than one-third share. Consumer discretionary, telecommunication services and consumer staples round off the next three spots with a double-digit exposure each. EIDO has added 3.6% so far this year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (read: Believe in T Rowe Price? Invest in These EM ETFs ). iShares MSCI Thailand Capped ETF (NYSEARCA: THD ) The fund targets the Thailand equity market and tracks the MSCI Thailand IMI 25/50 Index. It has amassed nearly $218.2 million in its asset base and trades in good volume of 186,000 shares a day on average, probably ensuring no additional cost beyond the expense ratio of 0.64%. In total, the ETF holds 126 stocks, with each accounting for less than 7% share. It is somewhat concentrated from a sector perspective as financials comprises more than one-fourth of total assets while energy and industrials round off the next two spots with double-digit exposure each. The product is up 3.4% in the year-to-date timeframe and has a Zacks ETF Rank of 3 with a Medium risk outlook. iShares MSCI Malaysia ETF (NYSEARCA: EWM ) This ETF follows the MSCI Malaysia Index and has a targeted exposure to the Malaysian stock market. Holding 43 stocks in its basket, the fund is highly concentrated on the top three firms with at least 9% share each while the other firms hold no more than 5.7% of assets. Financials dominates the fund’s return at 30.3%, followed by industrials and utilities that make up for 14.8% share each. The fund has been able to manage assets worth $217.3 million and charges 47 bps in fees per year from investors. It is heavily traded with average daily volumes of 2.21 million shares. EWM has gained 3.4% this year so far and has a Zacks ETF Rank of 3 with a Medium risk outlook. iShares MSCI Chile Capped ETF (NYSEARCA: ECH ) This product provides exposure to 31 Chilean stocks by tracking the MSCI Chile IMI 25/50 Index. Here again, the top three firms dominate the portfolio with at least 8% share each while other firms account for less than 6.8% of assets. Further, about one-third of the portfolio is allotted toward utilities while financials and materials also receive double-digit exposure each. The ETF has accumulated $177.3 million in AUM and sees solid volume of more than 290,000 shares a day on average. Expense ratio came in at 0.64%. The fund is up 2.8% in the same period and has a Zacks ETF Rank of 3 with a Medium risk outlook. Deutsche X-trackers MSCI Mexico Hedged Equity ETF (NYSEARCA: DBMX ) This product offers exposure to the Mexican equity markets while at the same time hedges against any fall in the peso against the U.S. dollar by tracking the MSCI Mexico IMI 25/50 US Dollar Hedged Index. The fund holds 62 securities with the largest allocation to the top two firms that collectively make up for 22.9% of assets. From a sector look, consumer staples accounts for the largest share at 30.4% closely followed by financials (20.9%), telecom (14%) and industrials (13.2%). The fund has amassed $4.1 million in its asset base while trades in light volume of about 2,000 shares. It charges 50 bps in fees per year and has added 2.3% so far this year. DBMX has a Zacks Rank of 2 or ‘Buy’ rating with a Medium risk outlook. Link to the original post on Zacks.com

IndexIQ Projects Top 5 ETF Trends For 2016

When one year ends and another begins, people love to look back at the previous 12 months and acknowledge the best and worst of the period. The Oscars, the Grammies, and the Darwin Awards play to this common desire to reflect on the achievements and failures of the past year, as do various financial-industry awards and lists. But the New Year is also a time to look ahead, and that’s the direction IndexIQ chooses to fix its gaze in anticipation of the top five ETF trends for 2016: Currency-hedging Inflation Hedge fund strategies Commodities bottom Dynamic ETF innovation Currency Hedging IndexIQ believes the divergent economic policies of global central banks will fuel currency-hedging in 2016. The U.S. Federal Reserve recently raised interest rates for the first time in almost a decade, while the European Central Bank (“ECB”) and the Bank of Japan (“BOJ”) remain committed to “easy money” policies – the BOJ, in fact, recently pushed Japanese rates into negative territory. Currency-hedging can offset these monetary moves and thereby isolate the performance of underlying assets, irrespective of currency strength. Given the widely diverging policies of the world’s leading monetary authorities, many international investors will choose to hedge their bets. Inflation After years of unprecedented monetary expansion, central banks are complaining of low “inflation.” By this, of course, they mean “price inflation,” as measured by a gauge such as the consumer price index (“CPI”). But there’s an argument that the monetary expansion over the past several years did cause inflation – in asset prices – and that it must eventually trickle down into consumer goods. IndexIQ says that “if history is any guide,” prices are hard to contain once inflationary pressures start to push them higher – and that could happen in 2016. Hedge Fund Strategies These same dynamics are making alternative strategies – such as those pursued by hedge funds – more attractive. Alternative strategies are designed to have low correlation to traditional assets like stocks and bonds, and given the wild currency movements and potential for price inflation, stocks and bonds may have a difficult year. Alternative strategies, however, can take advantage of currency trends as well as investing in inflation-hedged assets like precious metals, real estate, and Treasury Inflation Protected Securities (“TIPS”). Hedge funds and other alternatives can also capitalize on Trend #4: commodities bottoming. Commodities Bottom? Although the firm admits it’s a “tough call,” IndexIQ believes 2016 may finally be the year that commodities hit rock-bottom and begin to mean-revert higher. Monetary easing in Japan and China may finally give life to oil, copper, and other reeling markets. Inflation could also be a factor pushing them higher, especially when denominated in currencies other than the U.S. greenback. Dynamic ETF Innovation These are “ETF trends,” of course, and IndexIQ’s “dynamic” ETFs are designed to take advantage of them. The continued “innovation” of so-called “dynamic” ETFs is another trend all on its own, with products built to help manage domestic and international equity volatility, interest rate risk, and the impact of currencies on investors’ portfolios. “The slowdown in China, an unsettled geopolitical situation, the ongoing impact of currency devaluations on growth and trade, and a pending U.S. election suggest that investors will be grappling with increased market volatility in 2016,” said IndexIQ CEO Adam Patti, in a recent statement. “As central bank policies diverge and a broad range of generally non-correlated asset classes show greater independence, we believe investors will increasingly look to liquid alternative products to help manage potential fixed income, equity, and currency volatility impact on their portfolios.” Jason Seagraves contributed to this article.