Tag Archives: china

Most Vulnerable Asia-Pacific ETFs On China Issues

The summer 2015 woes of China have resurfaced in winter 2016, making global stocks go ballistic. While China shook the global markets in August when its policymakers devalued the country’s currency by 2% against the greenback, the latest Chinese economic data have been extremely weak to start the new year. Activity in China’s services sector expanded at its slowest rate in 17 months in December. There was a trading halt on the key Chinese bourses, with the indexes diving 7% to start the new year. The decline was the worst single-day performance since the 8.5% decline on August 24, 2015, which was the root of the global market rout last summer. Additionally, China’s central bank guided the yuan to a five-year low in offshore trading on Wednesday, which raised expectations of further weakness in the Chinese economy and sparked off fears of a currency war among the export-centric Asian nations. Many analysts are now projecting a free fall in yuan so that the currency can reach equilibrium . As a result, hordes of global stocks have been offloaded, leading them to the most awful start to a year in 16 years. Spiraling woes in the Chinese economy and apprehensions of a currency war in the near future, especially among its Asian neighbors, led the Asian shares to suffer their largest weekly decline in over four years. Export-centric Asian economies may be now forced to depreciate their currencies to stave off competitive pressure and rev up their exports, while growth issues in China have marred investing prospects of countries with close trade ties (see all Asia-Pacific emerging ETFs here ). In any case, the Asian region has been buckling under pressure for quite some time now, thanks to bleeding capital. Apart from slowing growth, the region faces threats from the Fed tightening and its ominous impact on the Asian currencies. A continued hike in interest rates will add to the strength of the greenback, which in turn would devalue a set of Asian currencies. Moreover, a few Asia-Pacific economies are commodity-rich and tend to underperform massively in a period like this, when commodities are slouching. All these offhand occurrences clarify the recent sell-off in the Asian shares. Below, we highlight a few Asia/Asia-Pacific ETFs which are highly susceptible to issues in China. These ETFs lost massively in the last five trading sessions (as of January 8, 2016) on the Chinese market upheaval, more specifically at the start of the new year. The funds are likely to bounce back more swiftly as soon as the doldrums in China calm down (see all Asia-Pacific (Developed) ETFs here ). iShares MSCI Australia ETF (NYSEARCA: EWA ) – Down 9.6% China is one of the largest trading partners of Australia, and thus acts as a key driver in the movement of the latter’s economy. This is why Australia ETF EWA retreated 10.4% in the last five trading sessions (as of January 7, 2016). The fund has a Zacks ETF Rank #4 (Sell). iShares MSCI South Korea Capped ETF (NYSEARCA: EWY ) – Down 5.2% Korea was also left in a quandary, as Chinese currency devaluation raised concerns over general trade. There are several South Korean companies, namely Samsung Electronics ( OTC:SSNLF ), Hyundai Motor ( OTC:HYMLF ), LG Corp. ( OTC:LGEAF ) and Daewoo which have big export markets and thus pared gains. Also, the nuclear test by North Korea had an adverse impact on the South Korean securities. EWY was down 5.3% in the last five trading sessions (as of January 7, 2016). The fund has a Zacks ETF Rank #3. iShares MSCI Taiwan ETF (NYSEARCA: EWT ) – Down 7.6% Apart from South Korea, the Taiwanese economy also thrives on exports. As a result, Taiwanese companies also recorded losses on fears of losing on currency competitiveness to China. Notably, Taiwan houses one of the largest semiconductor companies in the world – Taiwan Semiconductor. In short, South Korea and Taiwan’s stock markets will be hit by yuan devaluation in a passive way. This Zacks Rank #3 ETF lost 8.3% in the last five trading sessions. iShares MSCI Singapore ETF (NYSEARCA: EWS ) – Down 4.8% Singaporean securities were under pressure lately on issues in the neighboring country China. This happened even after Singapore reported faster-than-expected expansion in the economy. EWS has a Zacks ETF Rank #3 (Hold). Original Post

6 Inverse Leveraged ETFs Soaring To Start 2016

As fresh signs of a slowdown in China and a relentless slide in crude sparked off fears of a global slowdown, the U.S. stocks posted their worst five-day start to the year in history. The S&P 500 index plunged 6% while Dow Jones tumbled 6.2% last week. The tech-heavy Nasdaq Composite index, which outperformed last year, lost 7.3%. Additionally, a strong dollar, geopolitical tensions in the Middle East and weak corporate earnings are weighing heavily on investor sentiment. This is especially true as earnings in the S&P 500 are projected to decline 5.3% for Q4 2015. This would mark three consecutive quarters of a year-over-year decline in earnings since Q1 2009 to Q3 2009, as per the earnings Factset . Amid myriad woes, investors have little reason to believe that the bull market will complete its seventh year on March 9 and thus shunned U.S. equities. According to etf.com , investors pulled out $5.8 billion in capital from U.S. equity ETFs. This has resulted in huge demand for inverse or leveraged inverse ETFs for investors seeking to make big gains in a short span. In fact, many products provided outsized gains (over 30%) in the first week of 2016, though these involve a great deal of risk when compared to traditional products. Below, we have highlighted five such ETFs that crushed the market last week and should continue doing so at least for the near term if global sentiments remain volatile. These products either create an inverse long/short position or leveraged inverse long/short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Direxion Daily S&P Biotech Bear 3x Shares (NYSEARCA: LABD ) This product seeks to deliver thrice (3x or 300%) the inverse (opposite) daily performance of the S&P Biotechnology Select Industry Index. The fund has amassed $33.4 million in its asset base and average daily volume of more than 632,000 shares. It charges investors 95 bps in annual fees and expenses. The ETF delivered whopping returns of 51.8% in the first week of 2016. VelocityShares 3x Inverse Crude ETN (NYSEARCA: DWTI ) This product provides three times inverse exposure to the daily performance of the S&P GSCI Crude Oil Index Excess Return. The ETN is a bit pricey as it charges 1.35% in annual fees while average daily volume is solid at 1.4 million shares. It has managed $374 million in its asset base and surged 38.4% last week. ProShares UltraProShort Nasdaq Biotechnology (NASDAQ: ZBIO ) This fund seeks to deliver thrice the inverse performance of the NASDAQ Biotechnology Index. It has accumulated $12 million in its AUM and charges 95 bps in annual fees. Average trading volume is moderate, exchanging about 73,000 shares a day in hand. The fund gained nearly 38.1% in the same time frame. Direxion Daily FTSE China Bear 3x Shares (NYSEARCA: YANG ) This fund provides thrice the inverse return of the FTSE China 50 Index. The product has AUM of around $82.8 million and sees good trading volume of 251,000 shares a day on average. Expense ratio came in at 0.95%. YANG returned nearly 36.2% over the past one-week period. Direxion Daily Semiconductor Bear 3x Shares (NYSEARCA: SOXS ) This ETF provides three times inverse exposure to the PHLX Semiconductor Sector Index. It charges 0.95% in annual fees and trades in average daily volume of more than 117,000 shares. It has managed $45.9 million in its asset base and gained 33.3% last week. Direxion Daily Natural Gas Related Bear 3x Shares (NYSEARCA: GASX ) This product provides three times inverse exposure to the natural gas segment of the equity market, which tracks the ISE-Reverse Natural Gas Index. It has amassed $3.8 million in its asset base while volume is paltry at around 8,000 shares. Expense ratio came in at 0.95%. GASX was up 31.5% in the first week of 2016. Bottom Line As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing – when combined with leverage – may force these products to deviate significantly from the expected long-term performance figures. Still, for ETF investors who are bearish on the equities and oil for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world. Original Post

Top 5 Mutual Fund Sectors In 2015

While most of the major mutual fund sectors struggled to finish 2015 in the green amid concerns stemming from China-led global growth worries and the slump in oil prices, some succeeded in coming out with flying colors. The strong rebound in the fourth quarter, after a declining trend till the third quarter, primarily boosted these funds. The Dow and the S&P 500 posted their worst yearly performances since 2008, and cash flows were also on the discouraging side. Mutual funds witnessed huge cash outflows in 2015, which hit record highs multiple times. While US-focused mutual fund categories failed to register double-digit gains in 2015, only the Japan Stock category registered growth. Mutual funds started the year 2015 on a positive note, with 87% of funds finishing in the green in the first quarter. But their performance deteriorated in the second quarter, when only 41% of funds succeeded in registering gains. The performance in the third quarter was the worst in four years. While only 17% of mutual funds finished in the green in the quarter, the Bear Market funds category, which bet against the market uptrend, emerged as the top gainer in both August and September, adding 9.1% and 4.2%, respectively. However, mutual funds recovered significantly in the fourth quarter, which also included October – the best month in four years. Meanwhile, foreign mutual funds, including those focused on acquiring Japanese stocks, outperformed domestic mutual funds last year. In such a scenario, we present the top 10 mutual fund categories in 2015: Mutual Fund Category 2015 Return (%) Japan Stock 11.97 Health 8.05 Foreign Small/Mid Growth 7.04 Technology 5.21 Consumer Defensive 4.15 High Yield Muni 4.09 Foreign Small/Mid Blend 3.79 Muni California Long 3.72 Large Growth 3.6 Preferred Stock 3.18 Source: Morningstar Major Concerns As mentioned earlier, mutual fund cash flows remained weak in 2015, mostly due to the overall negative tone of the U.S. markets. As a matter of fact, in the first half of 2015, fund inflows slumped 36% year over year to $143 billion. This drastic fall was largely due to the dismal second quarter, wherein inflows declined to $41 billion through June 17, comparing unfavorably with $102 billion of inflows in the first quarter. The markets were affected all-year round by several concerns, such as sluggish growth in major economies, including China and the eurozone, the slump in oil prices, a strong dollar and rate hike fears. Worries emanating from Grexit concerns, the plunge in biotech stocks following price gouging concerns and geopolitical tensions in regions like Yemen and Syria also dealt huge blows to the major benchmarks. Additionally, in the week that the Fed finally decided to hike rates, bond mutual funds witnessed massive outflows. According to Lipper, for the week ending December 16, $15.4 billion was pulled out of taxable bond funds. Also, high yield junk bond funds witnessed the largest outflow of $3.8 billion since August 2014 in the same week. An outflow of $5.1 billion from investment-grade bond funds was the biggest since Lipper started recording data in 1992. 5 Best-Performing Fund Categories in 2015 In this section, we have highlighted the five best-performing mutual fund categories of 2015 and also recommend one mutual fund from each category that has a Zacks Mutual Fund Rank #1 (Strong Buy) and other strong fundamentals. Japan Stock Japan opted for several economic stimulus measures last year, which proved to be more effective than the steps taken by China and the eurozone. The economy rebounded strongly in the third quarter to register a GDP growth rate of 1%, contrary to the second quarter’s contraction of 0.5%. Japan’s key index, Nikkei, hit an 18-year high in 2015. Hence, the Japan Stock category, which was also the best gainer in the first half of 2015, finished right at the top with nearly 12% gains last year. Fidelity Japan Smaller Companies Fund No Load (MUTF: FJSCX ), which invests most of its assets in securities of Japanese small-cap companies or other instruments that are economically connected with Japan, was one of the top performers of this category. The fund returned 12.6% last year. It also has a 3- and 5-year annualized return of 16.6% and 10.2%, respectively. Moreover, FJSCX’s expense ratio of 0.97% is lower than its category average of 1.43%. Healthcare The healthcare category, which is considered as a consistent performer, came in second in 2015. A massive sell-off in biotech stocks through August and September, and concerns regarding Hillary Clinton’s plan to prevent “price gouging” for specialty drugs had a negative impact on the category. However, a strong rebound in the fourth quarter helped the sector to finish the year on a positive note with a modest gain of 8.1% in 2015. Encouraging third-quarter earnings results, merger and acquisition activities, product approvals and encouraging pipeline updates were mainly behind the rebound. Vanguard Health Care Fund Investor (MUTF: VGHCX ) invests in healthcare companies, including pharmaceutical firms, medical supply companies and companies engaged in operations related to medical and biochemical. The fund returned 3.8% in 2015 and has an expense ratio of only 0.34%, compared to the category average of 1.37%. VGHCX also has a 3- and 5-year annualized return of 24.8% and 20.3%, respectively. Foreign Small/Mid Growth Although concerns regarding sluggish growth throughout the globe had a negative impact on markets in most of 2015, the Foreign Small/Mid Growth sector managed to register healthy gains. Investors found foreign countries attractive, as the central banks of major regions opted for economic stimulus measures. As a result, the sector occupied the third position with more than 7% yearly gain. AllianzGI International Small-Cap Fund A (MUTF: AOPAX ) primarily invests in securities of companies having market capitalization similar to those included in the MSCI World Small-Cap Index. The fund returned 9.8% last year. It also has a 3- and 5-year annualized return of 9.8% and 6.1%, respectively. AOPAX’s expense ratio of 1.45% is lower than its category average of 1.53%. Technology Though several concerns, including a stronger dollar and weak global growth, negatively impacted the technology sector, it was one of the few bright spots in 2015. Broad-based gains in the sector helped the tech-heavy Nasdaq to clearly outperform the other major benchmarks in 2015. Meanwhile, the sector was one of the best performers in the third-quarter earnings season. These factors boosted the category to increase 5.2% in 2015. T. Rowe Price Global Technology Fund No Load (MUTF: PRGTX ) invests the majority of its assets in companies expected to derive a large proportion of their revenues from the development and application of technology. It returned 10.4% in 2015 and has an expense ratio of 0.91%, which compares favorably to the category average of 1.45%. The fund also has a 3- and 5-year annualized return of 24.4% and 17.3%, respectively. Consumer Defensive This is one of the main categories that gained from the low oil price environment. Also, a steady increase in consumer expenditure played an important role in boosting the U.S. economy throughout 2015, helped the category to finish in the positive territory. Additionally, a strong job market, which includes healthy job gains and a declining unemployment rate, also boosted the category for most of the year. As such, Consumer Defensive returned nearly 4.2% in 2015 and finished in the top five. Fidelity Select Retailing Portfolio No Load (MUTF: FSRPX ) invests a large chunk of its assets in securities of firms involved in merchandising finished goods and services to consumers. The fund returned 17.8% last year. It also has a 3- and 5-year annualized return of 21.4% and 19.1%, respectively. FSRPX’s expense ratio of 0.81% is lower than its category average of 1.41%. Original Post