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ECB To Be More Dovish? Watch These ETFs

The European Central Bank (ECB) president Mario Draghi surprised the global market yesterday by giving cues of further policy easing in its March meeting. This came on the heels of Draghi’s repeated assurance of a more intensified and protracted policy easing, if need be. With the Euro zone growth picture still dull and the inflationary environment slackening considerably, prospects of further rate cuts and a likely raise in ECB’s ongoing QE measure have high chances of manifestation. Draghi reaffirmed that the ECB will evaluate and ‘possibly reconsider’ the monetary policy in the March meeting. The reason behind this dovish stance was a 12-year low Brent crude which ruined the possibility of any improvement in inflation in 2016. The ECB economists had projected the annual inflation rate to inch up ‘from 0.2% recorded in December 2015 and average 1% this year, rising further in 2017’. But with oil prices sliding 40% more than the time when the projections were made, Draghi is now skeptical of inflation in 2016, as per the Wall Street Journal. At present, ECB expects 2016 inflation to be 0.7% (down from 1% projected earlier) while inflation for 2017 is expected to be 1.4% (down from 1.5% guided previously) (read: Dovish Draghi Drives Up These European ETFs ). The ECB took several meaningful steps in last two years to bolster the common currency bloc. It launched an asset buying program at the start of 2015 and extended the program by six more months to March 2017 at the end of the year. The bank also cut its deposit rate by 10 bps, shoving it deeper into the negative territory to -0.3% (read: 4 European ETFs to Buy on Cheaper Valuations, QE Launch ). While the markets did not appreciate ECB’s year-end stimulus measure as they expected an outsized expansion in the QE policy and steeper cuts in interest rates, global stocks liked ECB’s statement this time around. Market Impact Several Euro zone ETFs rallied on January 21 post Draghi’s comment. Among the toppers were the iShares MSCI Italy Capped ETF (NYSEARCA: EWI ) , the Barclays ETN + FI Enhanced Europe 50 ETN (NYSEARCA: FEEU ) , the Credit Suisse FI Enhanced Europe 50 ETN (NYSEARCA: FIEU ) , the iShares MSCI United Kingdom ETF (NYSEARCA: EWU ) and the iShares Currency Hedged MSCI EMU ETF (NYSEARCA: HEZU ) with gains of about 2.9%, 1.8%, 1.5%, 1.4% and 1.3%, respectively. Euro also shed gains as evident by 0.03% losses incurred by the CurrencyShares Euro Trust ETF (NYSEARCA: FXE ) . The fund shed more gains of about 0.1% after hours. ETFs to Play Investors may take advantage of this euphoria in the European market. The first option is to bet on our top-ranked European ETFs. Below we highlight two options. Deutsche X-trackers MSCI Germany Hedged Equity ETF (NYSEARCA: DBGR ) DBGR is a hedged German equity ETF providing exposure to 56 firms. The fund focuses on Consumer Discretionary, Financials and Health Care sectors. Expense ratio comes in at 0.45%. DBGR has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook. DRGR was up 1.3% on January 21, 2016. Deutsche X-trackers MSCI United Kingdom Hedged Equity ETF (NYSEARCA: DBUK ) This hedged UK ETF has amassed about $4 million in assets. The fund holds114 stocks presently and charges 45 bps in fees. Financials, Consumer Staples, Energy, Consumer Discretionary and Health Care have a double-digit weight in the fund. The fund was up 1.4% on January 21 and carries a Zacks ETF Rank #2 (Buy). Investors can also play this move by shorting the euro ETFs. Below, we highlight a few choices in the inverse euro ETF space. These ETFs profit when the euro declines and may be suitable for hedging purposes against the fall in the currency. ProShares Ultra Short Euro ETF (NYSEARCA: EUO ) This leveraged ETF looks to provide twice the inverse exposure to the performance of euro versus the U.S. dollar on a daily basis. The ETF charges a hefty annual expense ratio of 95 basis points. The product was up 0.04% on January 21. Investors could book more profits off this fund, should the euro continue to struggle. Market Vectors Double Short Euro ETN (NYSEARCA: DRR ) This is an exchange-traded note issued by Morgan Stanley. The product seeks to track the performance of the Double Short Euro Index. For every 1% weakening of the euro relative to the greenback, the index normally gains 2%. The product charges an expense ratio of 0.65% a year and advanced about 1% (as of January 21, 2016). Link to the original on Zacks.com

Using Momentum And Hedge Funds To Build A Better Portfolio

Welles Wilder revolutionized the investment world in 1978 when he developed the Relative Strength Indicator (“RSI”). RSI was one of several new technical indicators that helped individual investors move away from static “60/40” or “70/30” stock/bond asset allocations as trading commissions plummeted in the wake of discount brokerages displacing more expensive “full-service” offerings. Now, nearly forty years later, Berkeley Square Capital Management has a new take on RSI – and the traditional “70/30” allocation. The firm combines the two concepts, while adjusting RSI from a short-term indicator based on the past 14 days to a longer-term momentum indicator based on the past 12 months , and also adding hedge funds to the allocation mix – “50/30/20.” What’s more, Berkeley Square’s momentum strategy differentiates between the best and worst sectors within each asset class, taking advantage of reduced commission charges by rebalancing its portfolios as frequently as warranted to maximize risk-adjusted returns. Sector Breakdowns Rather than allocating 50% to the S&P 500, 30% to the Barclays Aggregate, and 20% to the HFRI Hedge Fund-Weighted Composite (“FWC”), Berkeley Square breaks each of the broad indices down into its composite sectors, and then assigns RSI rankings to each. The top five sectors from each asset class are then weighted to comprise the total “50/30/20” portfolio. Among equities, Berkeley Square looks at the S&P 500’s ten composite sectors: Energy Materials Industrials Consumer discretionary Consumer staples Health care Financials Information technology Telecommunications Utilities For fixed-income, Berkeley Square looks at the following Barclays Total Return indices: S. Corporate Investment Grade Intermediate Corporate Long U.S. Corporate S. MBS GNMA S. Long Credit S. Aggregate Government/ Credit And for hedge funds, the following HFRI strategy style indices are considered: ED: Merger Arbitrage EH: Equity Market Neutral EH: Short Bias Emerging Markets (Total) Equity Hedge (Total) Event-Driven (Total) Fund of Funds Composite Macro (Total) Frequency of Rebalancing The frequency of portfolio rebalancing should always be scaled to maximize risk-adjusted returns. According to Berkeley Square’s findings, equity holdings are best rebalanced monthly, which has historically yielded a return per unit of risk of 0.76 – compared to risk-adjusted returns of 0.56 for annual rebalancing, 0.59 for semi-annual, and 0.66 for quarterly. By contrast, bond holdings perform best when rebalanced annually, and hedge-fund holdings when rebalanced quarterly. Independent Returns Adding hedge funds to the asset allocation has slightly improved returns, historically, but more greatly improved risk-adjusted returns. As Modern Portfolio Theorist Harry Markowitz said, “Expected return is a desirable thing and variance of a return is an undesirable thing” – so rational investors should prefer more stable returns to more volatile returns, all other things being equal. From 1991 through 2014, the S&P 500 Total Return Index generated compound annualized returns of 10.18%, compared to the HFRI FWC’s 10.81%. But the S&P’s annualized standard deviation of 18.39% yielded a return per risk unit of 0.55, while the HFRI FWC’s much lower 12.11% annualized standard deviation yielded a 0.89 return per unit of risk. The Barclays Aggregate Index of bonds, by contrast, yielded much lower annualized returns of 6.39%, but with even lower annualized volatility of 4.97%, its return per unit of risk was the highest at 1.29. Putting it all Together What’s important, of course, is how the three asset classes act together, within a single portfolio: According to Berkeley Square’s research, the “50/30/20” portfolio – even without rebalancing – outperformed “70/30” with annualized returns of 9.58% from 1991 through 2014, compared to the “70/30” portfolio’s returns of 9.48% over that same time. More importantly, “50/30/20” outperformed on a risk-adjusted basis, with a return per unit of risk of 0.85 compared to the “70/30” portfolio’s 0.72. But what about when Berkeley Square’s dynamic reallocation system was followed? In this case, the “50/30/20” portfolio’s annualized returns were boosted to 10.92% with return per unit of risk of 1.16, besting even the long-only S&P 500 Total Return Index’s 10.18% returns, and with much less volatility. For more information, download a pdf copy of the white paper . Jason Seagraves contributed to this article.

ETF Stats For December 2015: Actively Managed ETF Assets Overtake ETNs

Assets in actively managed ETFs climbed 3.3% to $22.9 billion in December, while assets in ETNs dropped 4.5% to $21.5 billion. This is a significant milestone for actively managed ETFs, marking the first time that their asset levels have surpassed those of ETNs. Overall U.S. industry assets shrunk 1.1% in December to end the year at $2.12 trillion, producing a 6.0% one-year growth. December saw 23 new introductions and two closures. The month and year ended with 1,845 U.S.-listed products, consisting of 1,644 ETFs and 201 ETNs. For the year, the 284 launches and 101 closures resulted in a net increase of 183 products. Product quantity and asset levels have historically tracked relatively closely at about $1 billion in assets for every ETF. Calendar year 2015 ended with an average of $1.15 billion per product, down from $1.20 billion a year ago. The quantity of actively managed ETFs increased by only 9.6% during 2015, growing from 125 to 137. This belies the 33.0% surge in assets, which shot from $17.3 billion to $22.9 billion. As mentioned earlier, this is the first time actively managed ETF assets have been greater than ETN assets, even though ETNs outnumber actively managed ETFs 201 to 137. Fund-of-fund ETFs also saw growth in 2015, increasing from 44 to 77 with assets surging to $14.8 billion (an increase of more than 224%). Much of 2015’s growth was spurred by new currency-hedged international ETFs, which buy an unhedged ETF and then add a currency overlay. Although the 77 fund-of-fund ETFs are included in the industry product counts, their reported asset levels are excluded. If they were included, it would result in double counting because the assets in these ETFs are already reflected in the asset levels of the funds they purchase. The quantity of funds with more than $10 billion in assets decreased from 52 to 51 for December, but this tiny 2.8% of the products hold 59.4% of the assets. The number of products with at least $1 billion in assets increased by two to 256, and they account for 89.9% of the assets. Just 814 ETFs and ETNs can claim an asset level above $100 million, a level some analysts believe is required for profitability, leaving 1,031 (55.9%) in a questionable state. Trading activity surged 38.9% in December to $1.86 trillion. This represents a turnover ratio ($ volume / industry assets) of 87.8% for the month. There were 13 funds averaging more than $1 billion in daily trading during December, and they accounted for 57.6% of the industry trading activity. The quantity of ETFs and ETNs with more than $100 million in average daily dollar volume was 107, and 364 posted more than $10 million in daily trading activity. Liquidity remains a concern for many products, with 236 not trading on the last day of the year and 19 going the entire month with zero volume. December 2015 Month End ETFs ETNs Total Currently Listed U.S. 1,644 201 1,845 Listed as of 12/31/2014 1,451 211 1,662 New Introductions for Month 23 0 23 Delistings/Closures for Month 2 0 2 Net Change for Month +21 0 +21 New Introductions 6 Months 153 8 161 New Introductions YTD 272 12 284 Delistings/Closures YTD 79 22 101 Net Change YTD +193 -10 +183 Assets Under Mgmt ($ billion) $2,097 $21.5 $2,118 % Change in Assets for Month -1.0% -4.5% -1.1% % Change in Assets YTD +6.3% -20.2% +6.0% Qty AUM > $10 Billion 51 0 51 Qty AUM > $1 Billion 251 5 256 Qty AUM > $100 Million 778 36 814 % with AUM > $100 Million 47.3% 17.9% 44.1% Monthly $ Volume ($ billion) $1,786 $74.0 $1,860 % Change in Monthly $ Volume +38.8% +41.5% +38.9% Avg Daily $ Volume > $1 Billion 12 1 13 Avg Daily $ Volume > $100 Million 100 7 107 Avg Daily $ Volume > $10 Million 348 16 364 Actively Managed ETF Count (w/ change) 137 +2 mth +12 ytd Actively Managed AUM ($ billion) $22.9 +3.3% mth +33.0% ytd Data sources: Daily prices and volume of individual ETPs from Norgate Premium Data. Fund counts and all other information compiled by Invest With An Edge. New products launched in December (sorted by launch date): SPDR S&P 500 Fossil Fuel Free ETF ( SPYX ) , launched 12/1/15, will target S&P 500 companies that do not own fossil fuel reserves, which currently excludes 25 stocks. The fund uses capitalization weighting, has a yield of 1.9%, and an expense ratio of 0.20% ( SPYX overview ). MomentumShares U.S. Quantitative Momentum ETF (BATS: QMOM ) , launched 12/2/15, is an actively managed ETF that selects stocks using its Quantitative Momentum Process that includes trend quality and seasonality. It typically concentrates its portfolio at around 60 holdings and has an expense ratio of 0.79% ( QMOM overview ). Direxion Daily Healthcare Bear 3x Shares (NYSEARCA: SICK ) , launched 12/3/15, seeks to provide 300% of the inverse daily performance of the Health Care Select Sector Index. This is the second life for this ETF, as it was previously launched on 6/15/11 and subsequently closed on 9/5/12. Its expense ratio will be capped at 0.95% ( SICK overview ). Direxion Daily Natural Gas Related Bear 3x Shares (NYSEARCA: GASX ) , launched 12/3/15, seeks to provide 300% of the inverse daily performance of the ISE-Revere Natural Gas Index. This is the second life for this ETF, as it was previously launched on 7/14/10 and subsequently closed on 9/23/14. Its expense ratio will be capped at 0.95% ( GASX overview ). Direxion Daily S&P Biotech Bear 1x Shares (NYSEARCA: LABS ) , launched 12/3/15, seeks to provide the daily inverse return of the S&P Biotechnology Select Industry Index and has an expense ratio of 0.45% ( LABS overview ). SPDR Russell 1000 Low Volatility Focus ETF (NYSEARCA: ONEV ) , launched 12/3/15, tracks a smart-beta index using multiple factors (value, quality, and size) with a focus on low volatility. It has an expense ratio of 0.20% ( ONEV overview ). SPDR Russell 1000 Momentum Focus ETF (NYSEARCA: ONEO ) , launched 12/3/15, tracks a smart-beta index using multiple factors (value, quality, and size) with a focus on high momentum. It has an expense ratio of 0.20% ( ONEO overview ). SPDR Russell 1000 Yield Focus ETF (NYSEARCA: ONEY ) , launched 12/3/15, tracks a smart-beta index using multiple factors (value, quality, and size) with a focus on high yield. It has an expense ratio of 0.20% ( ONEY overview ). Tierra XP Latin America Real Estate ETF (NYSEARCA: LARE ) , launched 12/3/15, tracks the performance of all major listed companies in the real estate industry in Latin America. The underlying index is comprised of 52 locally listed equities ranked overall by market capitalization, dividend yield, and liquidity. Its expense ratio is 0.79% ( LARE overview ). Elkhorn FTSE RAFI U.S. Equity Income ETF (BATS: ELKU ) , launched 12/10/15, is designed to track the performance of high-yield stocks in the U.S. that have been screened to target sustainable income. Index constituents are selected and weighted using four fundamental factors, and the fund sports a 0.39% expense ratio ( ELKU overview ). iShares FactorSelect MSCI Emerging ETF (BATS: EMGF ) , launched 12/10/15, seeks to track the investment results of an index composed of stocks of large- and mid-capitalization companies in emerging markets that have favorable exposure to quality, value, size, and momentum factors. Its expense ratio is capped at 0.65% through 12/31/2016 ( EMGF overview ). Pacer Autopilot Hedged European Index ETF (BATS: PAEU ) , launched 12/15/15, uses a dynamic currency hedge on a static portfolio of stocks tracking the FTSE Eurobloc Index. The currency hedge is based on a 20-day and 130-day moving average crossover of the euro and U.S. dollar relative strength. The fund has an expense ratio of 0.65% ( PAEU overview ). Pacer Trendpilot European Index ETF (BATS: PTEU ) , launched 12/15/15, alternates between 100% exposure to the FTSE Eurobloc Index, 100% exposure to 3-month T-bills, and a 50/50 exposure between the two based on the relationship of the FTSE Eurobloc Index to its 200-day moving average. PTEU has an expense ratio of 0.65% ( PTEU overview ). Guggenheim Dow Jones Industrial Average Dividend ETF (NYSEARCA: DJD ) , launched 12/16/15, offers an alternative, strategic beta approach to the 30 stocks of the Dow Jones Industrial Average by weighting each security by its dividend yield, rather than price. The ETF has an initial yield of 2.7% and an expense ratio 0.30% ( DJD overview ). SPDR S&P North American Natural Resources ETF (NYSEARCA: NANR ) , launched 12/16/15, tracks an index of large- and mid-cap U.S. and Canadian companies in the natural resources and commodities businesses that have energy, materials, or agriculture classifications. It has 59 holdings, a current yield of 2.7%, and an expense ratio 0.35% ( NANR overview ). JPMorgan Diversified Return Europe Equity ETF (NYSEARCA: JPEU ) , launched 12/21/15, provides developed Europe equity exposure across 10 equally weighted sectors. The underlying index selects stocks using a bottom-up multi-factor stock-ranking process that combines value, quality, and momentum factors. The new ETF has an expense ratio of 0.43% ( JPEU overview ). MomentumShares International Quantitative Momentum ETF (NYSEMKT: IMOM ) , launched 12/23/15, is an actively managed ETF that selects international stocks using its Quantitative Momentum Process that includes trend quality and seasonality. It typically concentrates its portfolio at around 60 equally weighted holdings and has an expense ratio of 0.99% ( IMOM overview ). WisdomTree Dynamic Bearish U.S. Equity Fund (NYSEMKT: DYB ) , launched 12/23/15, tracks an index that can range between 0% to 100% long U.S. large-cap low-volatility equities and is hedged with a 75%-100% bearish position consisting of short positons in large-cap cap-weighted stocks (and U.S. Treasury securities). The net equity exposure of this ETF can range from -100% to +25%, and it has an expense ratio of 0.48% ( DYB overview ). WisdomTree Dynamic Long/Short U.S. Equity Fund (NYSEMKT: DYLS ) , launched 12/23/15, tracks an index that is 100% long U.S. large-cap low-volatility equities and then hedged with a 0%-100% bearish position consisting of short positons in large-cap cap-weighted stocks (and U.S. Treasury securities). The net equity exposure of this ETF can range from 0% to +100%, and it has an expense ratio of 0.48% ( DYLS overview ). Legg Mason Developed ex-US Diversified Core ETF (NASDAQ: DDBI ) , launched 12/29/15, uses a proprietary diversification method designed to provide broad exposure balanced across developed international markets. It aims to be a core holding that can complement cap-weighted products and has an expense ratio of 0.40% ( DDBI overview ). Legg Mason Emerging Markets Diversified Core ETF (NASDAQ: EDBI ) , launched 12/29/15, uses a proprietary diversification method designed to provide broad exposure balanced across emerging markets. It aims to be a core holding that can complement cap-weighted products and has an expense ratio of 0.50% ( EDBI overview ). Legg Mason Low Volatility High Dividend ETF (NASDAQ: LVHD ) , launched 12/29/15, seeks income from sustainable dividends from U.S. stocks to provide a more reliable income stream, reduced volatility, and the potential for appreciation with an expense ratio of 0.30% ( LVHD overview ). Legg Mason US Diversified Core ETF (NASDAQ: UDBI ) , launched 12/29/15, uses a proprietary diversification method designed to provide broad exposure balanced across U.S. equities. It aims to be a core holding that can complement cap-weighted products and has an expense ratio of 0.30% ( UDBI overview ) Product closures in December and last day of listing : Guggenheim BulletShares 2015 Corporate Bond ETF (NYSEARCA: BSCF ) 12/30/15 Guggenheim BulletShares 2015 High Yield Corporate Bond ETF (NYSEARCA: BSJF ) 12/30/15 Product changes in December: OppenheimerFunds, Inc. acquired VTL Associates and its RevenueShares ETFs effective December 2, 2015. The eight affected ETFs were rebranded as Oppenheimer ETFs. The First Trust Global Copper ETF (NASDAQ: CU ) underwent an extreme makeover, becoming the First Trust Indxx Global Natural Resources Income ETF (FTRI) effective December 21, 2015. The First Trust Global Platinum ETF (NASDAQ: PLTM ) underwent an extreme makeover, becoming the First Trust Indxx Global Agriculture ETF (FTAG) effective December 21, 2015. Announced Product Changes for Coming Months: WisdomTree will close on its acquisition of Greenhaven Commodity Services and its two ETFs with an effective date of January 4, 2016. The fund names will change from Greenhaven to WisdomTree, becoming the WisdomTree Continuous Commodity Index Fund (NYSEARCA: GCC ) and the WisdomTree Coal Fund (NYSEARCA: TONS ). Guggenheim Russell 1000 Equal Weight ETF (NYSEARCA: EWRI ) will cease to exist January 27, 2016. At that time, any remaining assets in the fund will be merged into the Guggenheim S&P 500 Equal Weight ETF (NYSEARCA: RSP ). Guggenheim will change the name and underlying indexes for three of its ETFs effective January 27, 2016. Guggenheim Russell 2000 Equal Weight ETF (NYSEARCA: EWRS ) will become Guggenheim S&P SmallCap 600 Equal Weight ETF (EWSC), Guggenheim Russell MidCap Equal Weight ETF (NYSEARCA: EWRM ) will become Guggenheim S&P MidCap 400 Equal Weight ETF (EWMC), and Guggenheim Russell Top 50 Mega Cap ETF (NYSEARCA: XLG ) will become Guggenheim S&P 500 Top 50 ETF ( XLG ). Van Eck Global plans to acquire Yorkville MLP ETFs and hoped to close the transaction in the fourth quarter. The plans were approved on December 17, 2015 and the reorganizations are now expected to close on February 8, 2016 . Previous monthly ETF statistics reports are available here . Disclosure: Author has no positions in any of the securities, companies, or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned.