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State Of Disunion: Safer Haven Investments Diverge From Stocks

The appetite for risk has been changing before our eyes. Large-cap U.S. stocks in the S&P 500 still rocketed mightily. Safer haven assets were every bit as desirable as the Dow and the S&P 500 in 2014. Is that uncommon for a late-stage bull market? Not particularly. On the other hand, the landscape may be changing. The S&P 500 soared 29.6% and 11.4% in 2013 and 2014 respectively, pushing the broad market benchmark to unimaginable heights. Net inflows into U.S. stock funds, including ETFs, also set records. Unfortunately, that is not always a positive sign for the asset class. The increased participation by the world’s investors in U.S. stocks may not be inordinately alarming. What might be far more ominous? The remarkable performance of safer haven assets over “stuck-in-place” stock assets since the Federal Reserve ended its third round of quantitative easing (QE3) on October 31. Specifically, the 30-year treasury yield has plummeted from roughly 3.0% to 2.4%, sending a proxy like the PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (NYSEARCA: ZROZ ) up more than 20%. Similarly, the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) has pocketed nearly 14%, while the SPDR Gold Trust ETF (NYSEARCA: GLD ) has rallied about 10%. The appetite for risk has been changing before our eyes. Remember the success of riskier equities in 2013, as investors ran from treasury bonds and gold? Indeed, 2013 was only one of two negative years for total bond returns across two decades. Equally staggering, gold appeared to many as if it might collapse altogether. The nature of risk shifted in 2014. Large-cap U.S. stocks in the S&P 500 still rocketed mightily. Yet the clear preference of stocks over safer holdings evaporated; treasuries rallied throughout the year, in spite of the near-unanimous sentiment that interest rates would fall. (Note: I am not opposed to tooting my own horn on this one – I recommended pairing large-cap stock ETFs with long duration treasury ETFs like the Vanguard Extended Duration Treasury ETF (NYSEARCA: EDV ) and ZROZ 13 months earlier.) Safer haven assets were every bit as desirable as the Dow and the S&P 500 in 2014. Some of them like TLT and ZROZ were more desirable. At least for a calendar round-trip, the ownership of historically divergent asset classes produced harmony and indivisibility. Is that uncommon for a late-stage bull market? Not particularly. On the other hand, the landscape may be changing. The perceived need for safety has risen appreciably since the Federal Reserve ended its electronic money printing in October. For example, in 2015, each of the 10 components of the FTSE Custom Multi-Asset Stock Hedge Index has gained ground, whereas the S&P 500 has drifted lower. Those component assets include long-maturity treasuries, zero-coupon bonds, munis, inflation-protected securities, German bunds, Japanese government bonds, gold, the Swiss franc, the yen and the dollar. Granted, the European Central Bank (ECB) intention to create $50 billion euros monthly for a year could reward risk-taking in the same manner that the Federal Reserve’s $85 billion per month had. On the flip side, the $600 billion euro figure that is floating on newswires may come off as underwhelming, as the Fed’s QE3 had been open-ended upon its announcement. Moreover, the “stimulus” amount ran beyond the trillion-and-a-half level. Keep in mind, you do not need to run from stock risk if you have a plan to minimize the severe capital depreciation associated with bear markets. My approach in latter stage bull markets involves pairing lower volatility stock ETFs like the iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) and the iShares S&P 100 ETF (NYSEARCA: OEF ) with safer haven ETFs like the Vanguard Long-Term Bond ETF (NYSEARCA: BLV ) and EDV. If popular stock benchmarks breach 200-day trendlines, I reduce equity exposure and/or employ multi-asset stock hedging by investing in those assets with a history of performing well in moderate-to-severe stock downturns. Click here for Gary’s latest podcast. Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

Market Vectors Vietnam ETF: Vietnam Looks Like A Must Have For Your Portfolio

Market Vectors Vietnam ETF offers pure play way to invest in high growth of Vietnam. ETF is trading towards bottom of 52 week range, despite bullish outlook for Vietnam. Companies pouring money into the country, which is expected to see its middle class double by 2020. Investors are always looking for the next hot sector or international market. Now that the days of large growth from the BRIC countries is slowing down, it’s time to look elsewhere for large international returns. After recent events and research, I have found that Vietnam is one of the markets every investor should consider getting into. There are limited options for most American investors when investing in Vietnam. Most investors should consider the easy hands off approach of Market Vectors Vietnam ETF (NYSEARCA: VNM ). Vietnam has a population of more than 90 million people. The country has a middle class that is expected to double by 2020. Strong exports and a position located between key Asian markets has Vietnam situated well for a continuance of strong growth. Another sign of further bullishness is the company’s increased penetration of the e-commerce market, which is expected to grow to more than $1 billion this year. Here is a look at GDP growth and forward estimates from the World Bank : · 2013: +5.4% · 2014: +5.6% · 2015: +5.6% · 2016: +5.8% · 2017: +6.0% A recent Reuters article pointed out the major expansion coming in Vietnam from Vingroup, a major conglomerate in the country. Vingroup has plans to launch 24 new shopping centers this year. That adds to the already opened 6 shopping centers owned by Vingroup. The expansion will also take Vingroup’s presence from 3 cities to 19 and veering one third of the country. Vingroup is a $3 billion company with a position in hospitals, entertainment, education, supermarkets, and real estate. Other large retailers are entering Vietnam to create shopping malls, supermarkets, and other retail stores. This list showed some of the top players in the country: · 1. Aeon ( OTC:AONNF ) (Japan) entered Vietnam in 2009, goal to open 20 shopping centers in Vietnam · 2. Berli Jucker ( OTCPK:BLJZY ) (Thailand) owns B’s Mart and recently acquired Metro Cash and Carry Vietnam, the owner of 19 distribution centers in the country. Company wants to get to 205 convenience stores in the next 4 years. · 3. Central Group (Thailand) opened Robins Shop centers in 2014 in Vietnam, now owns two · 4. Lotte (South Korea) entered Vietnam in 2008 and now has more than 10 department stores, 60 Lotteria stores, a hotel, and shopping center. Goal is to have 60 department stores by 2020 · 5. Vingroup (Vietnam) Company mentioned above has 13 Ocean Mart stores and more than 1000 convenience stores planned. One area of concern in the region is the banking sector. There has been a large number of bad loans that have weighed downs banks in Vietnam. An article on Reuters pointed out a theme of mergers coming in 2015 that could help boost the banking positions of large companies. Keep in mind that the financial segment represents 36% of the ETF’s assets. The consumer segment is seeing strong growth in Vietnam. Recently, Huy Vietnam, a large operator of restaurants, completed a $15 million financing round that will help boost expansion. The owner of more than 40 restaurants has brands like Mon Hue, Com Express, and Pho Ong Hung. The company plans on using the money for expansion of additional locations across the country. Often seen as a sign of a country really hitting the big time, McDonald’s (NYSE: MCD ) entered Vietnam in 2014. It took a long time to get the first McDonald’s open in the country, but now plans to expand are ramping up. The first one to open saw long lines and strong demand. Plans now call for 100 McDonald’s to open in the next 10 years. McDonald’s entry in Vietnam follows other recent entries from companies like Burger King (20 now), Baskin Robbins, Dairy Queen, Carl’s Jr., Popeyes (NASDAQ: PLKI ), Subway, and Starbucks (NASDAQ: SBUX ). KFC is the leader in Vietnam, among US companies, with more than 135 restaurants. The company entered the country in 1997. Other consumer companies are investing heavily in the region including diaper companies and food giants like Nestle ( OTCPK:NSRGY ). The food giant Nestle has five factories in Vietnam. Mondelez International (NASDAQ: MDLZ ) also recently invested $370 million in the Kinh Do sweets brand, to capitalize on the growth of Vietnam and its consumer spending. Vietnam continues to see a surplus in its import/export market. Ho Chi Minh was the largest city in Vietnam in terms of 2014 exports. The city had exports of $31 billion, marking the first time ever a city in Vietnam had $30 billion in outgoing revenue. Technology/manufacturing made up 70% of the country’s total exports. Another 22% came from the agriculture/forestry/seafood markets. Exports continue to be boosted by demand from several other countries/regions. The Northeast Asia region saw imports increase 32.5% from Vietnam. This was led by South Korea, which had growth of 105%. Now, investors should get used to that strong demand from South Korea, after the recent signing of a free trade agreement. The deal is expected to triple the trade between the two countries to more than $70 billion by 2020. In 2014, South Korea exported $17.7 billion worth of products to Vietnam. That compares to Vietnam shipping $5.9 billion worth of products to South Korea in 2014. Exports to China grew only 4.1%, a low number compared to recent history, but also a positive sign that Vietnam does not rely on the country. Europe saw an 18% increase in imports from Vietnam. The United States had 21% growth in Vietnamese imports. Another area of growth could be found in casino expansion coming soon. The prime minister of Vietnam recently approved casino operations on the southern island of Phu Quoc. This region already has an airport and international seaport, making it a highly trafficked area. Also consider the island is located in close proximity to Cambodia and Thailand. The Market Vectors Vietnam ETF is the way to capitalize on all the trends mentioned above. The ETF is the only pure play on Vietnam. The ETF charges an expense ratio of 0.72% and has more than $480 million of assets under management. According to current values, the fund has a dividend yield of 2.7% and a price earnings ratio of 10.8. Here is the sector breakdown of the fund: · 36% Financials · 18% Energy · 14% Consumer Discretionary · 12% Consumer Staples · 11% Industrials · 5% Materials · 3% Utilities The ETF has 30 stocks held in its portfolio. Here is a look at the top ten positions: · Bank for Foreign Trade 8.6% · Masan Group 8.1% · Vincom 7.9% · Saigon Thuong Tin Communications 6.7% · Petrovietnam Fertilizer 4.8% · Parkson Holdings ( OTC:PKSSF ) 4.7% · Soco International ( OTCPK:SOCLF ) 4.6% · Gamuda (GMAUF) 4.5% · Charoen Pokphand Foods ( OTCPK:CHPFF ) 4.3% · Hansae Co 4.3% Shares of the Vietnam ETF have fallen recently and now trade with a cheap valuation for investors, creating a pristine opportunity for investors looking to get exposure to the country. Shares sit at $18.61, close to 52 week lows. Over the last year, shares have traded between $17.85 and $23.17.

Preserve Purchasing Power With This ETF

By Thomas Boccellari Unexpected inflation can be corrosive to a fixed-income portfolio. While bond investors have had to contend with punishingly low interest rates, they have gotten a reprieve on the inflation front. In large part because of falling energy prices, inflation was only 1.3% over the trailing 12 months through November 2014. Because energy is a key input into nearly every aspect of the U.S. economy, it has a big impact on the total cost of production from everything from food and clothing to housing and transportation. Over the trailing 20 years through November 2014, the correlation between WTI Crude and the Consumer Price Index was 0.93. The strength of the U.S. dollar has also been a major contributor to low inflation. Because the eurozone and Japan have weakened their currencies to spur growth in their local markets, the U.S. dollar has strengthened against these currencies. This allows U.S. consumers cheaper access to imported goods from these markets. This is especially important as wage growth remains relatively low in the United States. Because of these trends, expected inflation is low. As of Jan. 12, 2015, the 10-year Treasury’s yield was 1.92%, while the yield of the 10-year TIPS was 0.35%. This implies a break-even inflation rate of 1.57%. The break-even inflation rate is the level inflation would have to increase above before investors would earn higher real returns in Treasury Inflation-Protected Securities. Over the trailing 20 years through November 2014, the average break-even inflation rate was 2.2%. Investors who believe that the long-term inflation will exceed the low-inflation expectations currently priced into traditional bonds may consider a TIPS exchange-traded fund such as Schwab US TIPS ETF (NYSEARCA: SCHP ) –the lowest-cost TIPS ETF available. This fund tracks a broad, market-cap-weighted portfolio of TIPS with more than a year left until maturity. Because TIPS are excluded from aggregate bond ETFs, this fund can be used as a complementary core holding for investors who own an aggregate bond market ETF such as Schwab U.S. Aggregate Bond ETF (NYSEARCA: SCHZ ) (0.06% expense ratio). Because more than half of the fund’s assets were invested in TIPS with maturities greater than seven years, at the end of December 2014, it had a longer duration (7.7 years) than the non-inflation-protected Barclays U.S. Treasury Bond Index (5.7 years). Duration is a measure of interest-rate sensitivity. Therefore, if interest rates were to increase 1%, investors could expect the fund and the Barclays U.S. Treasury Bond Index to decline by 7.7% and 5.7%, respectively. Generally, TIPS’ inflation adjustment is paid at maturity but taxed annually. To make tax time easier, the fund distributes inflation adjustments to the principal in addition to the coupon payment on a monthly basis. However, the fund may suspend interest payments during periods of deflation. This is because the inflation adjustment will become negative and will be offset against the coupon payments. Fundamental View TIPS combine the security of Treasuries with inflation protection in the form of Consumer Price Index-adjusted principal. The CPI represents the cost of a broad basket of goods and services. Inflation will drive the price of that basket higher, and deflation will make it cheaper. When the CPI goes up, a TIPS’ principal is adjusted upward accordingly. Even though the interest rate on the bond remains the same, the semiannual coupon is paid based on the adjusted principal. Inflation may still not rise substantially enough for TIPS to make sense. If interest rates remain consistent or rise slowly, the fund will likely underperform comparable non-inflation-protected bonds. For example, over the trailing six months through November 2014, U.S. inflation fell to 1.3% from 2.1%. Over this time period, the fund’s return (negative 0.7%) was less than that of the Barclays U.S. Treasury 7-10 Year Index (3.1%). However, if the inflation rate increases rapidly, the fund is likely to outperform the Barclays U.S. Treasury 7-10 Year Index. When the inflation rate increased to 2.1% in June 2014 from 0.9% in October 2013, the fund’s return (3.6%) exceeded that of the index (3.1%). The fund’s long duration (7.7 years) may also negate its inflation-protection benefit. This is because long maturity bonds are more susceptible to changing interest rates, which tend to rise when inflation increases. This is because the Federal Reserve often raises rates in order to curb inflation. If long-term interest rates increase with inflation, it could hurt the fund’s returns. For example, from July 2012 through July 2013, the 10-year Treasury yield increased to 2.6% from 1.5%. Over the same period, inflation increased to 2.0% from 1.4%. Despite the increase in inflation, the fund’s return (negative 4.2%) was less than that of the Barclays U.S. Treasury 7-10 Year Index (negative 3.7%) because of the fund’s longer duration. However, long-term interest rates have historically been less volatile than short-term rates. However, Federal Reserve action generally has a larger impact on short- and intermediate-term yields and less on long-term yields. This is because the Fed relies primarily on open market operations to influence short-term interest rates. If the Fed increases short-term interest rates to curb inflation and long-term rates remain relatively stable, the fund may not experience a significant loss. Portfolio Construction The fund tracks the Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L), which includes all TIPS issued that have at least one year left until maturity and $250 million in par value. The index is market-cap-weighted and rebalanced monthly. While TIPS are less liquid than Treasuries, the fund’s full index replication strategy has helped to minimize its index tracking error. Fees The fund charges 0.07% annually and is currently the cheapest TIPS ETF. Over the trailing three years through December 2014, the fund has lagged its benchmark by 0.09%, slightly greater than the amount of its expense ratio. Alternatives The largest and most liquid TIPS ETF is iShares TIPS Bond (NYSEARCA: TIP ) (0.20% expense ratio). It tracks the same index as SCHP. SPDR Barclays TIPS ETF (NYSEARCA: IPE ) (0.1865% expense ratio) tracks the Barclays U.S. Government Inflation-Linked Bond Index. While similar to the index that SCHP and TIP track, IPE requires that TIPSs have a minimum $500 million outstanding. As of December 2014, IPE had a shorter duration (6.1 years) and lower yield (1.8%) than SCHP and TIP. Shorter-duration TIPS indexes are somewhat more correlated to inflation, given their lower interest-rate sensitivity. Vanguard Short-Term Inflation-Protected Securities ETF (NASDAQ: VTIP ) (0.10% expense ratio) tracks an index that targets TIPS with maturities of less than five years. As a result, its duration (1.4 years) is considerably lower than SCHP’s. However, it also has a lower yield (0.9%). Another option is PIMCO 1-5 Year U.S. TIPS ETF (NYSEARCA: STPZ ) (0.20% expense ratio), which tracks a similar index as VTIP. Actively managed PIMCO Real Return (MUTF: PRTNX ) (0.85% expense ratio for A share class) has a Morningstar Analyst Rating of Silver. This fund follows a benchmark of TIPS and inflation-linked bonds but tries to garner additional returns through active bets. Disclosure: Morningstar, Inc. licenses its indexes to institutions for a variety of reasons, including the creation of investment products and the benchmarking of existing products. When licensing indexes for the creation or benchmarking of investment products, Morningstar receives fees that are mainly based on fund assets under management. As of Sept. 30, 2012, AlphaPro Management, BlackRock Asset Management, First Asset, First Trust, Invesco, Merrill Lynch, Northern Trust, Nuveen, and Van Eck license one or more Morningstar indexes for this purpose. These investment products are not sponsored, issued, marketed, or sold by Morningstar. Morningstar does not make any representation regarding the advisability of investing in any investment product based on or benchmarked against a Morningstar index.