Tag Archives: economy

Virtus Plans To Roll Out Actively Managed Japan ETF

Last month, Bank of Japan’s (BOJ) move to impose a negative interest rate for the first time in its history took the markets by surprise (read: Japan ETFs to Buy on Negative Interest Rates ). The BOJ’s step will help the third-largest country in the world to get closer to its target inflation rate of 2% by the first half of next year and boost confidence and spur demand. The BOJ Governor Haruhiko Kuroda stated that there is no limit to efforts for easing monetary policy. The central bank may further expand asset purchases if required (read: Japan ETFs to Tap on Renewed Stimulus Hopes ). Encouraged by this, Virtus has recently filed for an actively managed ETF, Virtus Japan Alpha ETF (EJA) , targeting this market. While a great deal of the key information, such as expense ratio, was not available in the initial release, other important points were released in the filing. We have highlighted those below for investors who may be looking for a fresh out-of-oven play targeting Japan from Virtus should it pass regulatory hurdles: Proposed Fund in Focus As per the SEC filing , the fund will generally comprise securities of Japanese companies listed on the JPX-Nikkei 400 Total Return Index. Japan Tobacco Inc. ( OTCPK:JAPAY ), Takeda Pharmaceutical Company Limited ( OTCPK:TKPYY ), Toyota Motor Corporation (NYSE: TM ) and Nippon Telegraph and Telephone Corporation (NYSE: NTT ) are some of the top weighted stocks in the index. The fund’s basket will include approximately 80-100 stocks from the Index based on quantitative and qualitative factors such as cash flow return on invested capital, earnings quality and momentum, operational quality, corporate governance policies and capital stewardship. The proposed ETF looks to provide long-term capital appreciation. Although Virtus ETF Advisers LLC is the fund’s adviser, it has appointed Euclid Advisors LLC as sub-adviser. The fund’s investments will be managed by Euclid Advisors. The issuer may exit from any stock, if it believes that the stock has become overvalued or if the stock’s weightage in the portfolio is too large. How does it fit in a portfolio? This proposed product could be an interesting choice for investors seeking exposure to the Japanese market. This is because the prime minister, Shinzo Abe, has started implementing his stimulus program, popularly known as Abenomics, in an effort to lift the economy out of feeble growth and deflationary pressure. Abenomics is a combination of aggressive quantitative easing policies from BOJ, increased public infrastructure spending and a boost to exports. In such a scenario, a Japan focus seems to be a good idea. As such, the fund might be a great choice in a global slowdown. The fund does offer some diversification benefit through exposure to Japan markets. The product uses a bottom-up approach and fundamental analysis ensures the fund includes stable and sound companies. Can it succeed? The proposed ETF does not have any direct competitor as there are currently no actively managed Japan ETFs available to U.S. investors. The proposed fund, if approved, could give investors a new way to play the Japanese equity market. The product might charge higher fees from investors annually due to its unique strategy. However, there are quite a number of other Japan equity ETFs listed in the U.S. Of these, the ultra-popular fund, iShares MSCI Japan ETF (NYSEARCA: EWJ ) , has a total asset base of $17.7 billion. This fund tracks the MSCI Japan Index and holds 318 stocks in its basket. It trades in heavy volume of 46 million shares per day and charges 47 bps in annual fees. EJA could also face competition from Japan hedged funds – the WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) with an asset base of $10.6 billion, the db X-trackers MSCI Japan Hedged Equity ETF (NYSEARCA: DBJP ) with AUM of $1.1 billion and iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ ) with AUM of $616.5 million. Thus, the proposed ETF, if launched, has a good chance of making a name for itself if it manages to generate returns net of fees greater than the passively managed products in the Japan equity ETF space. Virtus Japan Alpha ETF’s plan of using a bottom-up approach and fundamental analysis for stock selection is noteworthy, but its success is a huge factor of the returns it manages to generate. Link to the original post on Zacks.com Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Is It Worth Investing In China? 3 Mutual Fund Picks

Slowdown in the manufacturing sector and the export business taking a hit are compelling China to turn into a consumer driven economy. This phase of transition is expected to be painful. But for patient investors, the returns are expected to be encouraging if they choose to remain invested in the service sector over the long run. While the service sector was on an expansionary mode in February, retail sales registered double-digit growth during the first two months of this year. China’s regulatory measures, on the other hand, raised hopes of a much stable economy. Hence, it will be prudent to invest in China focused mutual funds that have significant exposure to the service sector. GDP Slows Down, Foreign Trade Hit Badly China’s GDP came in at 6.9% last year, the lowest in almost a decade. The International Monetary Fund has trimmed China’s economic growth to 6.3% this year. China’s economy continued to be weighed down by sluggish demand at home and abroad. China’s trade surplus narrowed to $32.6 billion in February from January’s all-time high of $63.3 billion. Exports in February tanked 25.4% from last year’s figure, while imports including oil, iron ore and copper nosedived 11.2%. Even though this fall is partly due to the Lunar New Year holidays that fell in February, the overall trend is downward. In January, both exports and imports had declined by 11.2% and 18.8%, respectively. Moreover, in 2015, China’s foreign trade shrank by 8% from 2014. Manufacturing Slows Down China has mostly been a manufacturing hub. But of late, its manufacturing sector is slowing down. The official manufacturing Purchasing Managers’ Index (PMI) came in at 49.0 in February, lower than January’s reading of 49.4. In fact, China’s factory activities contracted for the seventh straight month in February. The Caixin manufacturing PMI also came in at 48 in February, a five-month low. Manufacturing was hit mostly by the beleaguered construction sector, which generally boosts demand for industrial products. Major funds such as Oberweis China Opportunities (MUTF: OBCHX ), AllianzGI China Equity A (MUTF: ALQAX ) and Matthews China Investor (MUTF: MCHFX ) fell 11.8%, 8.4% and 13.1%, respectively, on a year-to-date basis, mostly due to significant exposure to the industrial sector. Service Sector Expands, Retail Sales Rise Due to weakness in the manufacturing sector, China is looking to shift its focus to the service and consumption based sector. The official services PMI came in at 52.7 in February, down from January’s figure of 53.5. Also, the Caixin services purchasing managers’ index (PMI) for February was at 51.2 compared to 52.4 in January. Even though these figures went down in February, it remained above the key figure of 50, indicating expansion in service activities. He Fan, chief economist at Caixin Insight Group said that “overall, the services sector has outperformed manufacturing industries, reflecting continued improvement in the economic structure.” Meanwhile, retail sales of consumer goods gained 10.2% on a year-over-year basis during the first two months of 2016, according to the National Bureau of Statistics (NBS). Retail sales were mostly driven by online sales. Online sales in the first two months of this year surged by 27.2% year on year to 636.1 billion yuan. 3 China-Focused Mutual Funds to Buy Given this scenario, China’s service sector remains the only bright spot, which might help its economy to navigate through troubled waters. Moreover, China’s financial market regulators’ promising moves to boost the economy such as imposing a ban on initial public offerings, restrictions on margin trading, allowing government-managed pension funds to invest in equity markets and restricting large shareholders from shorting stocks will help investors in the long run. Here we have selected three China focused mutual funds that mostly invest in the service sector, which includes retail, financials, information technology, telecommunications and healthcare. Funds have been selected over stocks, since funds reduce transaction costs for investors and also diversify their portfolio without the numerous commission charges that stocks need to bear. Further, these funds boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have positive 4-week and 3-year annualized returns and carry a low expense ratio. Fidelity China Region (MUTF: FHKCX ) invests a large portion of its assets in securities of Chinese issuers. As of the last filing, Tencent Holdings Ltd. ( OTCPK:TCEHY ), China Construction Bank Corp. ( OTCPK:CICHY ) and AIA Group Ltd. ( OTCPK:AAGIY ) were the top three holdings for FHKCX. FHKCX’s 4-week and 3-year annualized returns are 10.3% and 1.4%, respectively. Annual expense ratio of 0.96% is lower than the category average of 1.76%. FHKCX has a Zacks Mutual Fund Rank #2 and has a minimum initial investment of $2,500. Matthews China Dividend Investor (MUTF: MCDFX ) invests the majority of its assets in dividend-paying equity securities of companies located in China. As of the last filing, New Oriental Education SP (NYSE: EDU ), SERCOMM and China Construction Bank Corp. were the top three holdings for MCDFX. MCDFX’s 4-week and 3-year annualized returns are 9.6% and 4.2%, respectively. Annual expense ratio of 1.19% is lower than the category average of 1.76%. MCDFX has a Zacks Mutual Fund Rank #1 and has a minimum initial investment of $2,500. ProFunds UltraChina Investor (MUTF: UGPIX ) seeks returns that correspond to two times the daily performance of the BNY Mellon China Select ADR Index. As of the last filing, Alibaba Group Holding Limited (NYSE: BABA ), China Mobile Ltd. (NYSE: CHL ) and Baidu Inc. (NASDAQ: BIDU ) were the top three holdings for UGPIX. UGPIX’s 4-week and 3-year annualized returns are 38% and 7.8%, respectively. Annual expense ratio of 0.75% is lower than the category average of 1.99%. UGPIX has a Zacks Mutual Fund Rank #1 and has a minimum initial investment of $15,000. A higher minimum investment helps the fund manager to control cash flows, which eventually helps management of assets on a regular basis. Original Post

Sector ETFs To Benefit From Global Negative Interest Rates

The world is heading toward negative interest rates policies (NIRP) to stimulate sagging growth and prevent deflationary pressure. Most central banks, including the ones in Japan, Sweden, Switzerland, Denmark and Europe have adopted this policy. The central bank of Denmark was the first and foremost to set a negative tone for rates in mid 2012. It lowered its certificates of deposit ( CD ) rates to minus 0.20% from 0.05% in order to protect the krone’s peg to euro. Then the Danish central bank underwent a series of rate cuts in January and February 2015 going deeper into -0.75%. However, in January 2016, the bank raised the interest rates for the first time in almost two years by 10 bps to -0.65% (read: 5 Best Performing Country ETFs of 2015 ). The European Central Bank (ECB) joined the group in June 2014 by slashing the deposit rate from zero percent to -0.1%. The ECB then pushed the rates further to -0.3% in December 2015 and deeper to -0.4% on March 10, 2016. Switzerland introduced negative interest rates in December 2014, when the Swiss National Bank said it would charge banks 0.25% interest on bank deposits in an effort to curb its strengthening currency. The Swiss bank pushed the rates further into the negative territory to -0.75% in January 2015. Swedish Riksbank implemented negative rates in February 2015 when it cut repo rate to minus 0.1% from zero. The bank reduced the rates three times since then with the latest cut by 15 bps in February 11, 2016 to -0.50%. Last but not the least, Japan was the latest country to join the league in late January 2016 as the Bank of Japan set its benchmark interest rate at -0.1% (read: Japan ETFs to Buy on Negative Interest Rates ). NIRP: A Good or Bad? Though the negative rates policy has raised worries over the health of the banks and increased chances of default, it is actually a good for the economy and the stock markets. This is because the strategy would make lending cheaper and encourage spending, thereby leading to greater economic growth. In addition, it would make borrowing attractive for both consumers and business, driving demand for loans. As such, it will give a huge boost to sectors like real estate, housing and utilities. Further, NIRP would lead to capital outflows leading to depreciation of the currency, which will encourage exports and manufacturing. Investors should note that the NIRP policy has not been tested before and so, does not have any history. Given this, many investors want to reposition their portfolio to the sector ETFs that will benefit from NIRP. Below we have highlighted some of them: Vanguard Global ex-U.S. Real Estate ETF (NASDAQ: VNQI ) This fund offers a broad exposure across international REIT equity markets by tracking the S&P Global ex-U.S. Property Index. Holding 663 stocks in its basket, the fund is well spread out across components with none holding more than 3.3% share. European firms account for 26% of assets, while Japan makes up for 24% share, and Sweden and Switzerland getting 2% each. The product has AUM of $3.1 billion and average daily volume of 316,000 shares. It charges 18 bps in fees per year from investors and has lost 0.22% so far this year. WisdomTree Japan Hedged Real Estate Fund (NYSEARCA: DXJR ) This fund seeks to provide exposure to the Japanese real estate sector while at the same time offers hedge against any fall in the yen relative to the U.S. dollar. This is easily done by tracking the WisdomTree Japan Hedged Real Estate Index. In total, the fund holds 93 stocks with each holding less than 8.5% share. Expense ratio came in at 0.48%. The product has accumulated $145.8 million in its asset base and trades in a moderate volume of 63,000 shares a day on average. DXJR is down 4.8% in the year-to-date timeframe and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook. iShares FTSE EPRS/NAREIT Europe Index ETF (NASDAQ: IFEU ) This product targets 96 companies engaged in the ownership and development of the developed European real estate market. It tracks the FTSE EPRA/NAREIT Developed Europe Index, charging investors’ 0.48% in expense ratio. The fund is less popular and less liquid in the European space with $64.3 million in AUM and average daily volume of around 23,000 shares. IFEU has lost 6.2% in the year-to-date timeframe. WisdomTree Global ex-U.S. Utilities Fund (NYSEARCA: DBU ) This fund follows the WisdomTree Global ex-US Utilities Index, which measures the performance of the dividend-paying companies in the utilities sector of the developed and emerging equity markets, excluding U.S. European firms account for 54% of the portfolio while Japan takes 5% share. With AUM of $14.4 million, the fund is diversified across 97 securities with none holding more than 2.5% share. It charges investors’ 58 bps in annual fees and trades in a paltry volume of 4,000 shares a day. The ETF has shed 0.5% so far this year. Link to the original article on Zacks.com