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Bottom-Fishing With These Commodity ETFs?

After a stretch of nine awful months, broad commodities started to put themselves in order from the start of the fourth quarter. Most commodity ETFs were in the green in early October on unexpected strength from a weaker dollar, rebounding oil prices and stabilization in the key commodity-consuming nation, China, that brightened the lure for commodities. The dollar strength, supply glut, relentless economic turmoil in China and faltering global growth have been nagging botherations for commodities this year. Notably, a rising U.S. currency makes dollar-denominated assets more expensive to foreign investors, thereby dulling the appeal for commodities. As a result, the broader commodity market, as represented by the S&P GSCI Total Return, is down 17.6% so far this year (as of October 12, 2015) and has tagged itself the worst-performing asset class this year. Soft Job Data = Weak Dollar However, with a downbeat U.S. jobs report, global growth concerns and a subdued inflationary outlook on the backdrop, all talks about the Fed lift-off cooled off instantly. The tentative timeline of the Fed rate hike has been pushed to early next year, and the greenback fell from its prior height for a valid reason. This ushered gains for the broader commodity market. To add to this, commodities behemoth Glencore Plc’s ( OTCPK:GLCNF ) announcement that it will close its supply of many actively traded commodities – from zinc to copper – also boosted trading in the space. Commodities approached the biggest weekly gain in three years in the week ended October 9. Commodities Yet to Hit a Bottom? Several analysts were of the opinion that the worst may be over for commodities. Having slid for over four years, commodities are now offering a cheap valuation. The S&P GSCI Total Return index was down 38.3% in the last one-year frame, 19.3% down in the three-year frame and 9.9% down in the five-year frame (as of October 12, 2015). As per Market Realist, if we go by the Bloomberg Commodity Index, the asset class is off around 50% from high it hit in 2011. Still, investors should note that the recent bounce in the space appears short-term in nature. The relative strength index of the iShares S&P GSCI Commodity-Indexed Trust ETF (NYSEARCA: GSG ) currently stands at 51.06, indicating that the product is yet to enter oversold territory. Fundamentally, the global economy is yet to stand on its own feet, indicating a still-weak demand profile for commodities. China: A Pain in the Neck Just as the commodities took off, the Chinese economy started hitting downbeat data points all over again. The country’s trade numbers for September might have come in slightly better than expected; yet they showed that growth momentum is on the line. Plus, the economy’s September inflation turned out softer than expected. Moreover, the greenback might have taken a pause, but would get back its lost strength once the liftoff talks return with full force. Further, most commodities like gold and silver act as hedges against inflation, which is presently subdued globally and posing as a headwind for commodities. Thus, it would be foolish to say that bad patch is over the commodities space, as ominous clouds are still hanging above. Still, investors having a strong stomach for risks might try bottom-fishing and riding out near-term tailwinds. After all, there are some metal and related ETFs which offer great protection against market volatility and come out as safe havens. These metals could be good picks if the market remains edgy for some more time. For them, we highlight three commodity ETFs below that could act as better plays in the current market. SPDR Gold Trust ETF (NYSEARCA: GLD ) Gold is often viewed as a safe-haven asset to protect against financial risks, and has performed well lately (despite deteriorating fundamentals) on heightened market volatility. GLD tracks the price of gold bullion measured in U.S. dollars. The fund is the most popular and liquid bet in its space, with an asset base of $25.7 billion and an average trading volume of over six million shares a day. It charges 40 basis points as fees. This gold bullion fund was up about 5.3% in the last one month. It has a Zacks ETF Rank #3 (Hold). iShares Silver Trust ETF (NYSEARCA: SLV ) Silver has an edge over the gold, as the white metal is used in a number of key industrial applications. This metal is also viewed as an alternative investment to risky assets during economic uncertainty. The fund tracks the price of silver bullion measured in U.S. dollars. This ultra-popular silver ETF is worth over $5 billion and has heavy volume of nearly 5.8 million shares a day. It charges 50 bps in fees per year from investors. SLV was up over 9.9% in the last one month. The fund has a Zacks ETF Rank #3. First Trust Global Tactical Commodity Strategy ETF (NASDAQ: FTGC ) This $204.4 million fund is an actively managed broader commodity ETF. It charges 95 bps in fees and has high exposure in silver, wheat, cattle feeder, lean hogs, cocoa, coffee and sugar. Notably, most of these commodities are presently witnessing an uptrend in prices, making the product an intriguing play even in a rough commodity trading environment. The fund added over 3% in the last one month. Original Post

It Is A Good Time To Invest In The YieldCo ETF

Summary The renewable energy market is growing and yieldcos are gaining traction. The Global X YieldCo ETF remains insulated from the Chinese stock market weakness. Better performance than peers. The Global X YieldCo Index ETF (NASDAQ: YLCO ) is an ETF investing in YieldCos. This ETF provides a good chance of increasing investor returns, since it invests in the high yielding yieldcos as their underlying asset. In addition to investing in yieldcos which are considered a less risky way of earning stable dividends, this ETF also provides the benefit of diversification. The renewable energy market is set to grow at a rapid pace and will account for the lion’s share of electricity capacity going forward. YLCO has been battered recently due to a sharp fall in the overall energy sector. This has led to a jump in their yields as prices have declined. After drawing strong investor interest, the situation has reversed with investors shunning these securities. SunEdison (NYSE: SUNE ) which runs 2 yieldcos has said that it will not drop further projects into its yieldcos, given the sharp price erosion. Other companies such as Trina Solar (NYSE: TSL ) have also halted their plans of listing a yieldco. However, my view is that this is a temporary hiccup due to a combination of high exuberance for yieldcos and an overall selloff in energy prices. YLCO is currently trading down 27% since its listing in May 2015. Given the current slump in yieldco prices, I think it should be a good time to build some position in this safe bet. Why you should invest in this YieldCo ETF Underlying assets are yieldcos, which are growing – YieldCos are considered a safe bet given their low risk profile and ability to generate stable and predictable cash flows. They are also less volatile than renewable energy stocks. Even when the entire energy market is going through a severe downturn, I believe yieldcos are a good bet as they should continue paying their dividends since their cash flows are relatively immune from recessions. The growth story is also strong as the renewable energy industry is set to continue over the long term. No exposure to the Chinese market – The Chinese market turmoil has strongly affected the global commodity industry, with many commodity producers trading at multi year lows. There is a fear that the Chinese economy may face a hard landing leading to global slowdown. The global YieldCo ETF does not have any exposure in the Chinese market. The ETF has its maximum exposure in the U.S. market followed by the U.K. These two economies are performing well relative to other regions, such as Japan and Europe. A better shield to downside risks than individual holdings – YLCO has lost 27% since inception. Given below is the YTD performance of some of its top holdings, suggesting the ETF’s performance was better than most of its constituents. % of Holding YieldCos YTD performance 12.45 Brookfield Renewable Energy Partners (NYSE: BEP ) -10% 8.32 Terraform Power (NASDAQ: TERP ) -38% 7.68 NRG Yield Inc (NYSE: NYLD ) -45% 7.36 Nextera Energy Partners (NYSE: NEP ) -27% 6.53 Abengoa Yield (NASDAQ: ABY ) -27% Data as on 13th October’15 closing The renewable Energy Market is booming – There is an increased awareness about the renewable energy usage and its benefits in reducing the effects of global warming. Countries like India have large power deficits and rely on coal for their energy needs. Now these countries are at the forefront of an energy revolution, shifting largely towards solar, wind and other renewable forms of energy for their power needs. The U.S. has also made its stand clear by passing its recent ‘Climate Action Plan’. All of this speaks of a booming renewable energy demand. It is estimated that renewable energy could account for almost 80% of the world’s energy supply within four decades. The market for yieldcos is growing – YieldCos have proven to be a success amongst the shareholders, primarily due to their stable dividend growth and relatively lower risk profile. With the growing renewable energy market, more yieldcos are coming into existence. After the success of SunEdison’s ( SUNE ) Terraform Power, the company has also listed another yieldco specializing in developing economies – Terraform Global (NASDAQ: GLBL ). There was also a joint yieldco by SunPower (NASDAQ: SPWR ) and First Solar (NASDAQ: FSLR ) called 8point3 Energy Partners (NASDAQ: CAFD ). Likewise, Canadian Solar (NASDAQ: CSIQ ) is also thinking of forming a yieldco before year end. Stock performance & Valuation YLCO gave better returns than some of its top holdings, as shown in the table above. The YTD performance was also better than solar ETFs like the Guggenheim Solar ETF (NYSEARCA: TAN ) and the Market Vectors Solar Energy ETF (NYSEARCA: KWT ). The stock is currently trading at ~$11 which is 26% low than its all-time high price. The ETF was listed in May 2015 with an expense ratio of 0.65%. (click to enlarge) Source: Google Finance What could go wrong The energy stocks have taken quite a beating in recent days and yieldcos have not been immune to this fall. The slowdown of the Chinese economy has not only hurt the Chinese energy demand growth, but also the growth in other countries due to secondary indirect effect as their exports to the Chinese economy has declined. As we can see from the graph above, the stock price decline has happened in line and is following the trend in the broader energy market. If conditions get worse, the ETF could also lose more value. The project business is a highly capital intensive business, where developers resort to large amount of debt. Any problems in the sponsor company to honor their debt might lead to a slowdown in the yieldco business. Some of the yieldcos are now adopting a more prudent growth strategy to take into account the market turmoil. Some of the solar companies have also put their plans to do yieldco in cold storage. This might help YLCO as the competition for renewable energy assets will reduce, thereby making existing yieldcos more attractive. Conclusion The current weakness in the energy sector has caused major downturn in the energy sector. I believe this will cause the weaker players to close shop and only good quality stocks would survive. The major advantage of YLCO is that it does not have any exposure in the Chinese market, which is experiencing a major slowdown. Though it will not be totally isolated from the Chinese slowdown effects, it will still not be very drastic. Also the investment case for renewable energy market continues to be strong and YLCO insulates its investors from the volatility of directly investing in this sector. I think this is a good time to build a position in this yieldco ETF. Share this article with a colleague

5 Taxable Bond Funds To Invest In Despite Record Outflows

Taxable bond funds are debt securities whose interest payments are taxable at the local, state or federal level. Concerns about higher interest rates resulted in a massive sell-off in taxable bond funds in the third quarter of this year. Federal Reserve Chairwoman Janet Yellen indicated that the lift-off option is very much on the table later this year provided the economy is strong enough to boost employment and inflation touches the desired level. Moreover, worries about global growth, mostly in emerging economies, led to the outflow in taxable bond funds. Nevertheless, these type of funds showcased strength in an otherwise punishing market environment. They posted steady returns amid the stock market sell-off. They are even poised to yield better results banking on stepped-up economic activity, rising business and consumer confidence, improving housing market and continued job creation. Hence, investing in these funds should be a prudent idea. Taxable Bond Funds Suffer Huge Outflows Investors have pulled $36.2 billion out of taxable bond mutual funds in the third quarter of this year, according to the preliminary Lipper data. This represents the biggest outflow from this fund type since the fourth quarter of 2008. In fact, taxable bond mutual funds continued to bleed in the week ended October 7. During the week, investors pulled $2.3 billion out of taxable bond mutual funds, registering its 11th continuous week of net withdrawals. This dismal performance came in after taxable bond mutual funds posted their second-largest weekly outflow on record for the week ending September 30. In the first half of the year, however, taxable bond mutual funds had posted an inflow of more than $23 billion. But if this current outflow continues for the rest of the year, taxable bond mutual funds will mark their first annual net outflow since 2000. According to Jeff Tjornehoj, head of Americas research at Lipper, outflow from this type of funds was broad-based as it was spread across all types of categories and companies. He added: “Investors are getting out of these bond funds because of fear. An unfounded fear, in my opinion, of higher rates and a global recession.” Higher Rates, Global Growth Concerns Concerns about higher interest rates in the near term resulted in outflows from taxable bond mutual funds. Last month, the Fed Chairwoman Janet Yellen said that the Federal Open Market Committee (FOMC) members “expect that the various headwinds to economic growth … will continue to fade, thereby boosting the economy’s underlying strength.” She added: “Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter.” Worries about global economic growth, especially in the emerging economies including China, also led to outflow from bond funds. Markets across the world took a beating in response to the slowdown in China’s economic growth and its surprise move to devalue its currency. Weak Chinese trade data also raised concerns about the country’s growth outlook. While its exports were down 3.7% in September from the same period last year, its imports plunged 20.4% last month from a year earlier. Separately, other emerging markets also face the threat of instability, since their debts are vulnerable to rising interest rates in the US. Overall, the International Monetary Fund downgraded its global growth forecast for this year to 3.1%, which will result in the weakest growth performance since 2009. 5 Taxable Bond Funds to Buy as it Shows Signs of Stability Despite the outflows this year, taxable bond mutual funds are holding up a lot better than the stock markets. Amid volatility in the financial markets, returns from this type of funds remain more or less stable for the year, while the S&P 500 is down 2.7% year to date. Additionally, taxable bond mutual funds have given a steadier average annual return of 4.3% in the last 10 years. Moreover, flows are a result of economic events. A gradual recovery in domestic housing and manufacturing sectors, steady improvement in labor market conditions and lower gasoline prices are expected to boost the US economy in the near term. These factors are likely to have a positive impact on the fund’s performance. Several taxable bond mutual funds are excelling this year. Below we present five such bonds that have given steady returns, possess a relatively low expense ratio and boasts a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). Buffalo High-Yield (MUTF: BUFHX ) invests a major portion of its net assets in higher yielding, higher-risk fixed income securities.BUFHX currently carries a Zacks Mutual Fund Rank #1. BUFHX’s year-to-date and 1-year total returns are 3.2% and 4.7%, respectively. Annual expense ratio of 1.02% is lower than the category average of 1.06%. Vanguard Intermediate-Term Investment-Grade Investor (MUTF: VFICX ) invests in a widely diversified group of intermediate-term bonds, most of them issued by corporations with good credit ratings. VFICX currently carries a Zacks Mutual Fund Rank #2. VFICX’s year-to-date and 1-year total returns are 2.1% and 2.2%, respectively. Annual expense ratio of 0.20% is lower than the category average of 0.84%. Columbia Strategic Income Fund Class A (MUTF: COSIX ) invests in debt securities issued by the US government, including mortgage-backed securities issued by US government agencies. COSIX currently carries a Zacks Mutual Fund Rank #1. COSIX’s year-to-date and 1-year total returns are 1.2% and 1%, respectively. Annual expense ratio of 1.04% is lower than the category average of 1.27%. SEI Daily Income Trust GNMA Fund Class A (MUTF: SEGMX ) invests primarily in mortgage-backed securities issued by GNMA. SEGMX currently carries a Zacks Mutual Fund Rank #1. SEGMX’s year-to-date and 1-year total returns are 1.1% and 2.2%, respectively. Annual expense ratio of 0.63% is lower than the category average of 0.91%. Performance Trust Strategic Bond (MUTF: PTIAX ) invests a major portion of its net assets in fixed-income instruments. PTIAX may also invest in derivative instruments. PTIAX currently carries a Zacks Mutual Fund Rank #1. PTIAX’s year-to-date and 1-year total returns are 2.3% and 3.1%, respectively. Its annual expense ratio of 0.94% is lower than the category average of 1.03%. Original Post