Tag Archives: europe

5 Global ETFs Beating SPY In Q1

This has been a pretty rough quarter for the global stock market. China-led shocks, the return of recessionary threats in global superpowers like the Eurozone and Japan, nagging oil worries and a backtracking U.S. economy wreaked havoc on the global economy. The World Bank and the International Monetary Fund (IMF) also lowered their outlook on global growth. Along with economic slowdown, corporate earnings recession scared investors. Tensions intensified in the U.S. and European financial sectors in the early part of the year. Though market sentiments restored somewhat in March with a slight rebound in oil prices, a raft of positive U.S. economic data and policy easing in foreign shores, the aforementioned headwinds weighed on the bourses in the year-to-date time frame. SPDR S&P 500 ETF (NYSEARCA: SPY ) has gained about 0.6% so far this year (as of March 29, 2016), while Vanguard FTSE Europe ETF (NYSEARCA: VGK ) has shed about 2.9% during the same time frame. iShares MSCI All Country Asia ex-Japan (NASDAQ: AAXJ ) has added 1.3% and all-world ETF iShares MSCI ACWI (NASDAQ: ACWI ) has gone up by 0.3% (read: Will European ETFs Continue to Underperform SPY? ) However, a few global ETFs have stood out so far in Q1 (with two more days to go). These have beaten the S&P 500 index as well as other global indices by a huge margin. After all, in this period, the ECB broadened its QE policy, BoJ made pro-growth changes in its accommodative policies by introducing negative rates and various economies resorted to rate cuts, which in turn aided the following global ETFs. WisdomTree Commodity Country Equity ETF CCXE (NYSEARCA: CCXE ) The $7.6 million fund looks to track the performance of dividend-paying companies ranked by market capitalization from commodity countries. No stock accounts for more than 5.53% of the portfolio with StatoilHydro ASA, Ambev S.A., and Telecom Corporation of New Zealand Ltd. taking the top three positions. Financials (24.33%), Energy (20.66%), Telecom (12.05%) and Consumer Staples (11.60%) have double-digit weight in the fund. The fund charges 58 bps in fees and has advanced about 8.4% in the year-to-date frame (as of March 29, 2016). AdvisorShares Athena High Dividend ETF (NYSEARCA: DIVI ) This $7.2 million active ETF offers dividend yield of about 4.07%. The fund is heavy on North America (55%) followed by Latin America (23%) and Emerging Asia (16%). None of the stocks accounts for more than 4.25% of the portfolio. The fund is up 7.8% so far this year (read: 3 High Dividend ETFs Under $20 to Watch ). iShares MSCI All Country World Minimum Volatility ETF (NYSEARCA: ACWV ) What could be a more reasonable bet than a minimum volatility ETF in turbulent times? Quite expectedly, ACWV has added 6% so far this year (as of March 29, 2016). This $2.57 billion fund tracks the MSCI All Country World Minimum Volatility Index. Though the ETF provides exposure to low volatility stocks across the globe, U.S. accounts for more than half of the asset base. Apart from this, Japan is the only country with a double-digit allocation. In total, the fund holds 353 stocks with each accounting for no more than 1.48% of the assets. Financials, healthcare, consumer staples, and consumer discretionary are the top four sectors with double-digit allocation each. It charges 20 bps in annual fees (read: Can Low Volatility ETFs Save Your Portfolio from Market Rout? ). SPDR S&P Global Dividend ETF (NYSEARCA: WDIV ) This fund follows the S&P Global Dividend Aristocrats Index, which measures the performance of the companies that have raised dividends for at least 10 years consecutively. The $59.2 million product charges an annual fee of 40 bps. WDIV also provides a nice balance across each component with none holding more than 2.45% share. Financials and utilities take the top two spots at 25.2% and 15.3%, respectively. The fund has gained 5.6% so far this year and yields about 4.34% annually. FlexShares STOXX Global Broad Infrastructure ETF (NYSEARCA: NFRA ) This ETF could be appropriate for investors seeking to play the booming infrastructural activities worldwide. Investors should note that infrastructure is an interest rate sensitive sector, usually with strong yields. Thus, a still-low interest rate environment in the U.S. and rock-bottom interest rates in the Eurozone and Japan made this infrastructure ETF a winner. The fund has exposure to each of these regions with the U.S. holding about 40.3% exposure, followed by Japan with 11.9% share, and 9.7% and 8.3% share taken by Canada and the U.K. respectively. NFRA yields 2.45% annually and has gained 5.42% so far this year (as of March 29, 2016). Original Post

Should You Buy A Company After A Dividend Cut?

By Rupert Hargreaves Should you buy a company after it has cut its dividend? That’s the question Morgan Stanley’s analysts have tried to answer in a European Equity Strategy research note sent to clients today and reviewed by ValueWalk. Morgan’s research has been prompted by renewed investor interest in dividend cuts. Against a depressed earnings base, the market’s dividend payout level looks high in a historical context and the median stock’s payout ratio is close to a 20-year high. On a pan-European level, the payout ratio has exceeded 2009 levels. It’s also important to note that this is not an anomaly that is limited to a few key sectors, the percentage of stocks with a payout ratio in excess of 60% of earnings per share has reached the highest level in 20 years. Click to enlarge As European investors have seen over the past few months, even those companies that were considered dividend aristocrats aren’t in any way immune from payout cuts, with companies like Rolls Royce ( OTCPK:RYCEF ), BHP (NYSE: BHP ), EDF, RWE ( OTCPK:RWEOY ) and Repsol ( OTCQX:REPYY ) all cutting their dividends during the past six months. An updated study This isn’t the first time Morgan has investigated this question. Back in 2008, the bank conducted a similar research exercise and found that dividend cuts can indicate powerful inflection points in share prices. At the time, the research showed that investors could do well by buying stocks on dividend reductions, particularly those that are stressed. In the 2008 version, Morgan’s research showed that UK companies that cut their dividend tended to outperform thereafter, especially if the shares had previously been poor performers, the payout cut was large or the starting yield was high. Click to enlarge In this updated version, Morgan examines 372 instances of dividend cuts in Europe over the last ten years. The stocks are based on the current constituents of MSCI Europe IMI, with a current market cap bigger than $2 billion. To qualify as a dividend cut, the company’s dividend payout has to be reduced by 5% or more. Should you buy a company after a dividend cut? The results of this study are rather interesting. It appears that dividend cuts are indeed, often inflection points for stock performance. Morgan’s research on the 372 instances of dividend cuts in Europe over the last ten years shows that the median stock underperforms the market by 19% in the preceding 12 months but then outperforms by 11% in the subsequent 12 months, and by 19% by the end of year two. The probability of a stock beating the market in the following 12 months after a dividend cut is 65%, and 66% of the subsequent 24 months. Click to enlarge The research also showed that the strongest outperformance comes from stocks where the dividend yield ahead of the cut was 12% or higher with a hit ratio of 83% in the subsequent 12 months and 88% in the following 24 months. The weakest performance came from stocks trading on a dividend yield of 4% to 6% ahead of the announced cut. Stocks that underperformed the market ahead of the dividend cut announcement tended to outperform the most after a cut. Among the stocks that underperformed more than 60% prior to the cut, 74% outperformed on a 12m basis and 86% outperformed on a 24m basis. The weakest subsequent performance came from the group that underperformed less than 20%, with a hit ratio of 61%, even on a two-year basis. Click to enlarge And lastly, the size of the dividend cut has an effect on performance after the event. In the 372 cases studied by Morgan’s analysts, the average dividend cut is more than 80%. Stocks that cut their payouts by more than 60% outperformed the most post the cut. The weakest performing group is the one that cut the dividend by 20% to 40% – even on a 2-year view, only 56% of such companies outperformed the market. Click to enlarge Dividend Cut – The bottom line All in all, this analysis from Morgan presents a pretty compelling argument: investors should buy stocks on dividend cuts, particularly those that have underperformed significantly ahead of the announced dividend cut, that previously had a very high yield, and those that cut their dividend by 60% or more. This analysis is aimed at European investors and Morgan also provide some investment ideas in the form of stocks that cut their dividends in the last year and are ‘stressed’. Click to enlarge Disclosure: None

VIX: A Hedge To Consider For Your Portfolio

It is not uncommon to see the markets follow irrational trends. Sometimes, the markets will climb up or drop down on information that may indicate contrary trends. This past month I’ve been watching the markets with immense caution; I was a little surprised that we have seen US stocks rise for a fifth straight week. For the long run, I have a handful of stocks I think will grow exceptionally, but for the most part I believe we are entering a bear market, and I have thus prepared myself with hedges. The headlines, and the data and statistics that are coming in from Central banks and governments across the world are not exactly signaling optimism for the markets, yet the markets are trending towards all-time highs. ^SPX data by YCharts I think it’s absurd that the S&P 500 is approaching all-time highs, especially at a time like this. I will not go in depth as to why I think we are due for a major correction (again), but I will simply write a basic summary about why we are likely going to continue falling into a bear market, and about why investing in the VIX index might be smart. The reasons for a bear market heavily outweigh the reasons for a bull market right now. Commodities have staged an odd recovery the past couple of weeks that hasn’t exactly made much sense. Most importantly right now is the prices of oil; oil has proved to be latched on to the movement of stocks and vice versa. Brent Crude Oil Spot Price data by YCharts Brent crude oil has spiked over $10 USD in less than a couple months, but why? The world oil supply has remained at roughly 98 mb/d the past couple of months and demand has also been idle. I firmly believe oil will stage a recovery, but this recovery seems fake and is happening way too fast, which is alarming. In addition to the suspicious rise in commodity prices, there is tons of debt everywhere. People are getting crushed by margin calls, people are still accumulating debt, and energy companies are on the brink of bankruptcies. Banks are also having a hard time. Many major banks are hitting 52-week lows, although they have recovered slightly; but that point aside, they are still going to have to deal with lower interest rates. Nations around the world are following a general trend of lowering interest rates, even into the negative and this will likely hurt major bank stocks. Banks have also proven to be central to market crashes in recent history. It was a little surprising to see the markets react so positively to the Fed’s latest press release. Yellen gave the people a lot of “ifs” and “buts” and “maybes”, and I feel it did not justify the market spike we have just seen. On top of all this, we are seeing a ton of political turmoil, which inevitably affects the markets. There are a lot of problems right now in the world: Brazil is on the brink of a political and economic collapse, Europe is dealing with the refugee crisis which in turn is giving right wing groups serious power and support, Brexit is a serious possibility and would have potential consequences on markets worldwide (and in my personal opinion the Brexit would negatively impact the world markets), and then there’s the Middle East tension. I don’t want this article to be a sensationalist piece, but there are a lot of similarities between what is going on right now and the 1930s. Basically, I believe we are in for a roller coaster ride, and if there are people out there who are long on the markets as a whole, maybe a hedge or two would greatly benefit your portfolio. The VIX index The VIX is an index that uses options to predict stock market volatility, and it is commonly referred to as the fear gauge. ^VIX data by YCharts As you can see from the chart we have had numerous spikes in a short span of time. The last time we’ve seen this type of market volatility was in 2011, and I believe this time there is potential for the volatility to be even greater. Depending what market one invests in, it is entirely possible to put some money in an index that tracks the movement of the VIX. When the time comes for the market to crash, one’s portfolio will be protected with a hedge in the VIX, but this is definitely a highly risky trade. For example, Canadians, or those who invest in the TSX can invest in HVU. As I write this article the VIX is approaching lows it hasn’t seen since early 2015, but I believe the market volatility has just begun. Catching the bottom of the VIX and riding it up during a major spike could be very profitable, but once again this is to be used as a swing trade, and the ETF should not be held for more than a couple of weeks at most. Generally, I want readers to tread with caution in this current market environment. Everything seems off, and the markets are being irrational at the moment, thus a crash or a longer bear market might be in store for us. Hedging your portfolio is important, and remember to do your own research. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.