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A Comprehensive Guide To Russia ETFs

After struggling with falling energy prices and western sanctions following the Ukraine crisis, Russia seems to be coming back on track. The Russian benchmark stock index, the Micex, recently touched its seven-year nadir while major ETFs tracking the Russian equity market have been reflecting gains. Much of the recovery in the country is linked to the oil and gas industry as the state derives about half of its revenues from the industry and 25% of its GDP is based on it. Oil prices have been recovering on rising geo-political tensions across the world ranging from the situation in Syria and Northern Iraq to the recent downing of a Russian jet by Turkey. International benchmark Brent Crude reached its two-week high of above $46 recently, a rebound from the six-year low of roughly $43 in August. The impact of the Syrian crisis may look short-lived but that’s not the end of the story. Recently, Saudi oil minister indicated at a possible cooperation between OPEC and non-OPEC nations to deal with the over-a-year-long production turf war to stabilize the oil market at their meeting on December 4. Stabilization in Russian ruble is another reason for the inflow in Russian ETFs. A weak ruble in the past has been the major factor for investors’ distaste for these ETFs as they lower dollar-denominated returns. Ruble has rebounded about 34% from its year-to-date low of around 50 to around 65 against the greenback currently. In fact, Goldman Sachs (NYSE: GS ) expects ruble to be one of the good performing currencies in 2016 along with the U.S. dollar and the Mexican peso. Moreover, increasing prospects of cooperation between Russia and the west over the war against the extremist group Islamic State have been boosting investor confidence. This led to the possibility of the U.S. lifting economic sanctions imposed on Russia following the Ukraine crisis. Recently, the International Monetary Fund (IMF) released projections that indicated stabilization in the Russian economy in 2016. IMF expects the economy to contract only 0.6% next year following a 3.8% squeeze in 2015, given the impact of lower oil prices. It further predicted inflation to fall to 12.7% at the end of this year and will continue to do so in 2016 from the current rate of 15.7%. It also hinted at improvements in the trading situation in the country despite its high dependence on oil exports. Below we discuss three ETFs tracking the Russian equity market that posted double-digit gains in the year-to-date time frame (as of November 25, 2015). Investors should closely monitor the movement of these ETFs in the days ahead, particularly following the OPEC meeting next week. Market Vectors Russia ETF (NYSEARCA: RSX ) This is the most popular ETF with an AUM of nearly $2 billion. The fund tracks the Market Vectors Russia Index with the highest exposure to the energy sector (42.9%), followed by materials (17.8%) and financials (13.9%). It has a basket of 37 stocks with top three holdings including Sberbank of Russian Federation, Gazprom ( OTCQX:GZPFY ) and Lukoil ( OTCPK:LUKOY ). The ETF trades in a solid volume of 11.9 million shares per day and charges 63 bps in annual fees. It added 19.7% in the year-to-date time frame and has a Zacks ETF Rank #4 (Sell) with a High risk outlook. iShares MSCI Russia Capped (NYSEARCA: ERUS ) This ETF tracks the MSCI Russia 25/50 Index, measuring the performance of equity securities in the top 85% by market capitalization of equity securities listed on stock exchanges in Russia. The ETF with a basket of 27 stocks is also heavily weighted to energy sector (53.4%) followed by financials (18%) and materials (9.8%). Gazprom, Pjsc Gazprom and Sberbank of Russia are the top three holdings in the fund. ERUS has an AUM of $240 million and exchanges roughly 411,000 shares in hand per day. It charges 62 bps in annual fees and returned around 16.8% so far this year. It has a Zacks ETF Rank #4 with a High risk outlook. SPDR S&P Russia ETF (NYSEARCA: RBL ) RBL follows the S&P Russia Capped BMI Index with a basket of 43 stocks. It also gives the highest preference to the energy sector (47.1%) followed by financials (14.8%) and materials (11.3%). Gazprom, Lukoil and Sberbank occupy the top three spots in the fund. The product has amassed around $26 million in assets and trades in a paltry volume of roughly 9,300 shares per day. It charges 59 bps in investor fees and gained 17.8% in the year-to-date period. It carries a Zacks ETF Rank #4 with a High risk outlook. Original Post

4 Simple Actions To Consider After Fed Liftoff

We finally have liftoff. This week, after months of anticipation, the Federal Reserve (Fed) initiated its first rate hike in nearly a decade , raising the Fed Funds Rate by 25 basis points (bps). Why not a bigger blast off? The Fed has made it clear that rate “normalization” will happen gradually, meaning rates will likely remain below historical averages for the foreseeable future. But while it may take years to get back to a 4 to 5 percent Fed Funds rate, higher rates are on their way. The good news for investors is that just a few simple actions can help you prepare your bond and equity portfolios for this new rising rate environment . In the wake of the Fed’s decision, here are four such moves you may want to consider. 1. Consider Your Duration While longer-duration bonds can provide portfolio diversification benefits, shortening the duration of your bond portfolio can potentially help manage losses due to rising interest rates. Remember, duration is a measure of a bond’s sensitivity to interest rate changes. The longer the duration, the more a bond’s price is impacted. When interest rates change, a bond’s price will change in the opposite direction by a corresponding amount. For example, if a bond’s duration is 5 years and interest rates rise 1 percent, you can expect the bond’s price to fall by approximately 5 percent. Therefore, bonds with higher duration generally have greater price volatility and the potential for losses when rates rise . 2. Focus on Credit Instead of owning only Treasuries, you may want to focus on adding credit exposure. Credit exposure adds credit risk (the risk that the issuer won’t pay you back) to a portfolio, but it mitigates some interest rate risk. In addition, investors are compensated for taking more credit risk with higher yields, so increasing exposure to higher quality credit risk may enhance income and offset potential price declines due to rising rates. 3. Shift to Cyclical Sectors It’s important to remember that when rates rise, it’s not just bonds that are affected. Equities are affected too. Higher rates mean that borrowing money becomes more expensive, so it’s harder for businesses and consumers to finance everyday needs. As such, traditionally defensive sectors, like utilities and telecommunications, typically become increasingly vulnerable in a rising rate environment due to their existing large debt positions. At the same time, higher rates generally are a sign of an improving economy, boosting the case for adding exposure to cyclical sectors, which have tended to outperform when the economy is strong. I prefer to get cyclical exposure through two sectors: U.S. technology and U.S. financials (excluding rate-sensitive REITs). With their large cash reserves, U.S. mature tech companies are much less vulnerable to rising rates than companies in more debt-laden sectors mentioned above. In addition, tech sector revenues may increase if economic growth continues to expand and consumers and businesses spend more. Meanwhile, for some financial institutions, like banks, rising rates could mean higher profits, as net interest margins may increase. 4. Seek New Sources of Income You may also want to take a look at your dividend strategies when interest rates rise. Although traditional high dividend payers (think the utilities and telecom sectors) have performed strongly in recent years, they’ve become quite expensive by most valuation metrics. And the previously low interest rate environment paved the way for many of these defensive businesses to load up on debt to expand their operations, while continuing to pay high dividends to investors. As such, many of these companies will likely come under pressure when rates rise. In contrast, dividend growth stocks have historically demonstrated less interest rate sensitivity and may be an attractive way to maintain yield in a rising rate environment. In contrast to high dividend payers, they tend to be more reasonably valued and have more potential to sustainably grow dividends over time. So, although rates are expected to moderately increase, you can prepare your portfolio now for a rising rate environment by considering simple actions such as these. These simple steps may help to insulate your investments while also capturing new opportunities. Funds, such as the iShares Floating Rate Bond ETF (NYSEARCA: FLOT ), the iShares Short Maturity Bond ETF (BATS: NEAR ) and the iShares 1-3 Year Credit Bond ETF (NYSEARCA: CSJ ), can provide credit exposure with short duration. Meanwhile, the iShares U.S. Technology ETF (NYSEARCA: IYW ), the iShares U.S. Financial Services ETF (NYSEARCA: IYG ) and the iShares Core Dividend Growth ETF (NYSEARCA: DGRO ), can provide exposure to the U.S. technology sector, the U.S. financials ex-REITs sector and dividend growers, respectively. This post originally appeared on the BlackRock Blog.

GSAM Makes The Case For Multimanager Alternatives

By DailyAlts Staff Record-low interest rates and historically high stock valuations have more and more investors considering liquid alternative investments, which Goldman Sachs Asset Management (“GSAM”) defines as “daily liquid investment strategies” that seek to deliver “differentiated returns from those of core assets” and the potential to mitigate overall portfolio risk and severe drawdowns. In a recent Strategic Advisory Solutions white paper, GSAM makes the case for a multimanager approach to liquid alternative investing – through single turnkey multimanager funds, allocations across multiple managers of the investor’s choosing, or a combination of both. Why Diversify an Alternatives Allocation? GSAM categorizes the liquid alts universe into five peer groups: Equity long/short Event driven Relative value Tactical trade/macro Multistrategy As shown in the table below, the median returns of each peer group have very little persistence from year to year. Therefore, by diversifying across peer groups, investors can avoid the highs and lows of any given year in any given strategy. Building from Scratch One approach to diversifying across liquid alternative peer groups is to “weave” several liquid alts into a “unified portfolio construction framework.” This approach may be best for investors seeking to express high-conviction market views of their own, or for those who possess deep knowledge of particular strategies and managers. But in GSAM’s view, the process of selecting liquid alts requires expertise in the asset class, knowledge of manager capabilities, and judgment of manager and strategy risks, among other things. This makes the “build” approach research-intensive, which may be a bit much for many investors. Turnkey Solutions On the opposite end of the spectrum is the “turnkey” approach – a pre-assembled package of alts, such as a multimanager alternative mutual fund. In this approach, investors effectively outsource the research-intensive process cited above to professional managers. On the downside, investors employing this approach don’t get a customized allocation, which means that their specific investment needs could potentially be better-served. What are some other risks to the multialternative approach? GSAM lists several, including: Performance may depend on the ability of the investment advisor to select, oversee, and allocate funds to individual managers, whose styles may not always be complementary. Managers may underperform the market generally or underperform other investment managers that could have been selected instead. Some managers have little experience managing liquid alternative funds, which differ from private investment funds. Investors should be mindful of these and other risks, according to GSAM. The Best of Both Worlds? GSAM calls combining the “build from scratch” and “turkey” approaches “Buy & Build.” This hybrid approach generally entails complementing a multialternative fund with one or more high-conviction managers the investor believes can potentially contribute to specific investment objectives. This “middle ground” between pure customization and an off-the-shelf solution gives investors additional flexibility with a fraction of the research-intensity. Conclusion In conclusion, GSAM states the company’s belief that multimanager strategies have the potential to help investors pursue additional sources of returns and to diversify their alternative investment allocations. In the firm’s view, investors who are new to investing generally opt for the single package approach to multimanager investing, while more experienced liquid alternative investors often consider building from scratch. The important thing, in GSAM’s estimation, is to understand the potential that liquid alts offer as an additional driver of portfolio returns. For more information, download a pdf copy of the white paper . Jason Seagraves contributed to this article.