Tag Archives: japanese

Japan In Technical Recession: Time To Buy ETFs On The Cheap?

The Japanese economy is now officially in a technical recession having shrunk 0.2% sequentially in Q3 followed by a 0.3% contraction in Q2. On an annualized basis, GDP fell 0.8% in Q3 trailed by a 0.7% (which was in fact a revised up figure) decline in the second quarter. Economists had expected a 0.2% annualized and 0.1% sequential drop for the third quarter. Per Bloomberg, lower capital expenditure by Japanese companies that resulted in soft business investment and lower inventories in the wake of global growth worries led to this miss. Though the economy is expected to step up in the ongoing quarter as companies are likely to increase output on declining ‘ stockpiles in warehouses ‘, the weak GDP numbers also led to talks about further policy easing. Views that the economy ” might have hit the bottom” in Q3 is widespread now and most people are wagering on a more beefed-up fiscal and monetary policy. Even if the Japanese corporate profile looks steady, sluggish capital spending is now a big hindrance. As per analysts, the soft global and domestic economic backdrop is restraining them from investing aggressively. Not at all. Japanese companies under Nikkei 225 delivered record earnings recently but valuations have swollen only 2.3% from the end of last year, per Bloomberg . About 55% companies under the broader Topix index beat analysts’ estimates this season. Consumer prices in Japan halted year on year in September 2015, falling from a 0.2% rise in August. Inflation in Japan has now fallen back to the level never seen since May 2013 . This boosted hopes for further monetary easing. The BOJ has now delayed the deadline for achieving an inflation target of 2% by six months. If this was not enough, after a stellar run by the ongoing QE stimulus, Japanese equity ETFs are still attractively valued. The popular Japanese ETF iShares MSCI Japan (NYSEARCA: EWJ ) trades at a P/E of 13 times at the currency level. This calls for scope for more returns out of the Japan-based ETFs. However, since yen has devalued considerably thanks to the prevailing easy money policy and the Fed is preparing for a policy tightening, a currency-hedged ETF approach is desirable in Japan investing. Though the economy Minister of Japan recently commented that “at this point the government is still not considering ‘pure’ fiscal stimulus” and that the outcome of wage negotiations for fiscal year 2016 will be a more significant growth driver than fiscal stimulus, there is a clear indication that the economy will gather steam by either one way or the other. WisdomTree Japan Hedged Equity Fund (NYSEARCA: DXJ ) DXJ looks to offer investors a way to gain exposure to the Japanese shares devoid of currency risks. This is a liquid choice in the space with 7,000,000 shares in average trading volume a day. The large-cap oriented fund has a huge asset base of $17.2 billion and charges 48 bps in fees. Toyota Motor (NYSE: TM ) (4.80%), Mitsubishi ( OTCPK:MMTOF ) (4.76%) and Japan Tobacco ( OTCPK:JAPAF ) (4.34%) take the top three spots of the fund while consumer discretionary (24.6%) and industrials (23.2%) are top two sectors. The fund was up 6.5% in the last one month (as of November 16, 2015) and has a Zacks ETF Rank #2 with a Medium risk outlook. Japan Hedged Dividend Growth Fund (NYSEARCA: JHDG ) The ETF follows the WisdomTree Japan Hedged Dividend Growth Index. The fund consists of about 248 companies. The $25.3-million fund measures the performance of dividend-paying common stocks with growth characteristics selected from the WisdomTree DEFA Index while at the same time neutralizing exposure to fluctuations between the yen and the U.S. dollar. Consumer discretionary rules the fund with about 25% exposure. Industrials (23%), IT (13.8%), consumer staples (10.6%) and telecom (10%) also get double-digit weight each. NTT DoCoMo Inc (NYSE: DCM ) (5.5%), Japan Tobacco (4.59%) and Toyota Motor (4.4%) round out the top three spots of the ETF. JHDG charges 43 bps in fees and was up 6% in the last one month. WisdomTree Japan Hedged SmallCap Equity Fund (NASDAQ: DXJS ) DXJS offers exposure to the Japanese small cap stocks while at the same time provides hedge against any fall in the Japanese yen. This is easily done by tracking the WisdomTree Japan Hedged SmallCap Equity Index. The fund has accumulated $196.5 million in its asset base and charges 58 bps in fees per year from investors. Volume is moderate as it exchanges 80,000 shares in hand per day on average. The product holds 618 stocks in its basket with none accounting for more than 0.95% of assets. Industrials and consumer discretionary take the top two spots with around 24% share each, while materials, financial and information technology round off the top five. The ETF gained 4.9% in the last one month and has a Zacks ETF Rank #2. Original Post

How These 4 ETFs Will Benefit From A Rate Hike

With excellent October jobs data, the interest rates hike for December is back on the table. The U.S. economy added 271,000 jobs in October, much above the market expectation of 180,000 and representing the strongest pace of a one-month jobs gain in 2015. The Fed in its latest FOMC meeting also hinted at a December lift-off if the U.S. economy remains on track. In a recent Wall Street Journal poll, about 92% of the economists believe that the first interest rate hike in almost a decade will come at the December 15-16 policy meeting, while 5% expect the Fed to wait until March. The rest expect the Fed to keep cheap money flowing for longer. This is especially true as recent headwinds have faded with substantial positive developments seen in the global economy and financial market lately. In particular, the Chinese economy is showing signs of stabilization on the back of better-than-expected GDP growth data and another rate cut while the Japanese and European central banks are seeking additional stimulus measures to revive their economies (read: China Investing: Should You Buy These New ETFs? ). Further, the U.S. economy is showing an impressive rebound after a lazy summer and is continuing to outpace the other economies. Though the manufacturing sector expanded at its slowest pace in more than two years in October on a weak global economy and strong dollar, rise in new orders spread some hopes in the sector. Consumer confidence picked up in October, as measured by the Thomson Reuters/University of Michigan index, which rose to 90 after dropping to 87.2 in September from 91.9 in August. Unemployment dropped to a new seven-year low to 5% in October from 5.1% in September and average hourly wages accelerated by 9 cents to $25.20 bringing the year-over-year increase to 2.5%, the sharpest growth since July 2009. The solid pay gains will increase consumer spending in the crucial holiday season, which will translate into stepped-up economic activities. Given the recently improving fundamentals, an increase in rates seems justified. As a result, investor should focus on the areas/sectors that will benefit the most in the rising rate environment. Here, we have detailed four of these and their best ETFs below: Financials A rising interest rate scenario would be highly profitable for the financial sector. This is because the steepening yield curve would bolster profits for banks, insurance companies and discount brokerage firms. A broad way to play this trend is with the Financial Select Sector SPDR ETF (NYSEARCA: XLF ) , which has a Zacks ETF Rank of 2 or a ‘Buy’ rating with a Medium risk outlook (read: Rate Hike Coming in December? Financial ETFs & Stocks to Buy ). This is by far the most popular financial ETF in the space with AUM of $18.8 billion and an average daily volume of over 37.2 million shares. The fund follows the Financial Select Sector Index, holding 89 stocks in its basket. It is heavily concentrated on the top three firms – Wells Fargo (NYSE: WFC ), Berkshire Hathaway (NYSE: BRK.B ) and JPMorgan Chase (NYSE: JPM ) – with over 8% share each while other firms hold less than 6.2% share. In terms of industrial exposure, banks take the top spot at 37.2% while insurance, REITs, capital markets and diversified financial services make up for double-digit exposure each. The fund charges 14 bps in annual fees and has lost 1.2% in the year-to-date timeframe. Consumer Discretionary Consumer discretionary stocks also seem a good bet in the rising rate scenario. This is because these typically perform well in an improving economy justified by the healing job market, recovering housing market, surging stock market and expanding economic activities. Further cheap fuel is an added advantage for this sector. One exciting pick in this space can be the Vanguard Consumer Discretionary ETF (NYSEARCA: VCR ) , which has a Zacks ETF Rank of 1 or a ‘Strong Buy’ rating with a Medium risk outlook. This fund follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and holds 384 stocks in its basket. This is the low choice in the space, charging investors just 12 bps in annual fees while volume is also solid at nearly 153,000 shares a day. The product has managed over $2 billion in its asset base so far. It is pretty spread out across sectors and securities with a slight tilt toward Amazon (NASDAQ: AMZN ) at 7%, while other firms hold no more than 5.7% share. Internet retail, restaurants, movies and entertainment, and cable & satellite are the top four sectors accounting for over 10% of total assets. VCR has gained 8% so far this year. Short-Term Treasury Though the fixed income world is the worst hit by the rising rates scenario, a number of ETFs that employ some niche strategies like the iPath U.S. Treasury Steepener ETN (NASDAQ: STPP ) could lead to huge gains. This product directly capitalizes on rising interest rates and performs better when the yield curve is rising. The ETN looks to follow the Barclays U.S. Treasury 2Y/10Y Yield Curve Index, which delivers returns from the steepening of the yield curve through a notional rolling investment in U.S. Treasury note futures contracts. The fund takes a weighted long position in 2-year Treasury futures contracts and a weighted short position in 10-year Treasury futures contracts. STPP charges 0.75% in fees and expenses while volume is light at around 1,000 shares a day. Additionally, it is an unpopular bond ETF with AUM of just $2.5 million. The note has surged 4.6% in the year-to-date timeframe. Negative Duration Bond Negative duration bond ETFs offer exposure to traditional bonds while at the same time short Treasury bonds using derivatives such as interest-rate swaps, interest-rate options and Treasury futures. The short position will diminish the fund’s actual long duration, resulting in a negative duration. As a result, these bonds could act as a powerful hedge and a money enhancer in a rising rate environment. Currently, there are a couple of negative duration bond ETFs, out of which the WisdomTree Barclays U.S. Aggregate Bond Negative Duration ETF (NASDAQ: AGND ) has AUM of $17.9 million and average daily volume of 13,000 shares. This ETF tracks the Barclays Rate Hedged U.S. Aggregate Bond Index, Negative Five Duration. The benchmark provides long positions in the Barclays U.S. Aggregate Bond Index, which consists of Treasuries, government bonds, corporate bonds, mortgage-backed pass-through securities, commercial MBS & ABS, and short positions in U.S. Treasuries corresponding to a duration exceeding the long portfolio, with duration of approximately negative 5 years. Expense ratio came in at 28 bps. The product has gained 0.3% so far this year. Link to the original post on Zacks.com

Can October Turnaround Heal Q3 Scars? 3 Leading Fund Categories

Third-quarter 2015 turned out to be a stock market bloodbath. However, much to investors’ relief, markets have rebounded sharply from the beginning of October. Key benchmarks are up significantly since October 1, shrugging off the horrid third-quarter performance. In the third quarter, most mutual fund categories struggled to post gains. In fact our Mutual Fund Commentaries will show how certain fund categories like Energy, Health and Technology failed to have even one mutual fund scoring gains. However, the rebound now has changed the story. Technology and Health are now leading the one-month gains among the mutual fund categories. Since October 1 and till November 15, the Dow Jones Industrial Average, Standard & Poor’s 500 and the Nasdaq Composite Index gained 8.7%, 7.4% and 8.1%, respectively, and the mutual funds will not be exempted from growth. Thus, let’s look at the top 3 fund category gainers and pick one mutual fund from each that carries a favorable Zacks Mutual Fund Rank and is a leading gainer. Third-Quarter Rout China-led global growth fears, uncertainty about the Fed rate hike followed by the no liftoff decision, sell-off in biotech stocks and tumbling commodity prices among other factors resulted in the worst quarter in four years. Like a pack of cards, markets from Beijing to Berlin came tumbling down. Eventually, the quarter ended in massive losses, wherein the performance of mutual funds worsened from the dismal second quarter. In the third quarter, just 17% of mutual funds managed to finish in the green. This is a slump from 41% in the second quarter, which was again a sharp fall from 87% of the funds ending in positive territory in the first quarter. Separately, a JPMorgan (NYSE: JPM ) equity strategy note revealed that 67% of mutual funds underperformed their benchmark in the third quarter. Around 34% of funds underperformed their peers by a minimum of 250 basis points. The Dow, S&P 500 and Nasdaq declined 7.6%, 7% and 7.4%, respectively. The Dow registered its third-consecutive quarter of losses and the S&P 500 slumped for the second straight quarter. To term the third quarter of 2015 as a “bloodbath” would not be too off the mark. October Rebound Markets posted their best monthly performance in four years in October. For the month, the S&P 500, the Dow and the Nasdaq soared 8.1%, 8.6% and 9.2%, respectively. Investors largely ignored weak economic data to focus on positive external signals. In a surprise move, China’s central bank cut key rates, leading to further optimism. Additionally, the European Central Bank (ECB) said it would further boost the region’s economy. Tech and healthcare sectors staged a strong rebound, boosting the broader markets. Finally, the Federal Reserve refrained from hiking rates but indicated that such a move was likely in December. Earnings numbers were mixed, once again reflecting weakness in revenues. However, impressive results from the tech sector and resurgence in healthcare stocks boosted the broader markets. November So Far During the first week, the Dow, S&P 500 and Nasdaq gained 1.4%, 1% and 1.9%, respectively. Benchmarks registered weekly gains for the sixth-consecutive week. Merger and acquisition news including that between Dyax (NASDAQ: DYAX ) and Shire plc (NASDAQ: SHPG ), and Treehouse Foods, Inc. (NYSE: THS ) and ConAgra Foods, Inc.’s (NYSE: CAG ) spread cheer. Meanwhile, encouraging third-quarter earnings from companies like The Clorox Company (NYSE: CLX ), Michael Kors Holdings Limited (NYSE: KORS ), Facebook, Inc. (NASDAQ: FB ) and Ralph Lauren Corporation (NYSE: RL ) lifted the benchmarks. Also, strong auto sales data and a better-than-expected reading of the ISM Services Index helped benchmarks to finish the week in the green. Meanwhile, energy shares registered gains despite continued decline in oil prices. However, benchmarks lost some sheen in the second week following a sell-off in retail and energy shares. Nonetheless, markets are expected to continue the positive momentum. 3 Leading Mutual Fund Category Gainers It is not that every fund category is in the green over the past one month. Surprisingly, the Municipal Bond funds, including sub categories like Muni California Long and Muni New Jersey are in the negative territory. These funds were among the few to have posted gains in the third quarter. (Data source: Morningstar) On the contrary, key fund sectors that ended in the red last quarter are now leading one-month gains. Technology and Health are standing out. Let’s look at the top 3 fund categories, and one fund from each that is a leading gainer carries either a Zacks Mutual Fund Rank #1 (Strong Buy), Zacks Mutual Fund Rank #2 (Buy) or Zacks Mutual Fund Rank #3 (Hold), and have a minimum initial investment within $5000 . Technology The technology sector’s mutual funds were far from enjoying encouraging trends in the third quarter. Morningstar data revealed that the Technology fund category lost 7.7%. None of the technology mutual funds we studied could post gains in the quarter. The average loss for these 199 funds was 8%. Now, with a nearly 5% jump over the past one month, the Technology mutual fund category is the leading gainer. The technology stocks impressed with their third-quarter earnings at a time when the overall growth picture was challenged. The tech sector’s stock-price performance reflects strength as its S&P 500 members outperformed the index over the trailing 4-week period. BlackRock Science & Technology Opportunities Investor A (MUTF: BGSAX ) is a leading gainer in the technology sector. BGSAX’s one-month gain is 4.3%. Since October 1, BGSAX has returned 7.6%. BGSAX invests the majority of its assets in equity securities issued by domestic and foreign science and technology companies. BGSAX may invest a maximum 25% of its net assets in emerging economies and generally invests in common stocks, with preferred stocks and convertible securities also considered. BGSAX currently carries a Zacks Mutual Fund Rank #1. Health The robust rally by the Healthcare mutual fund category ended somewhat brutally in the third quarter. After finishing 2014, and the first and second quarters of 2015 as the top gainer among the sector equity funds, healthcare mutual funds finished in the bottom 10 in the third quarter. According to Morningstar, the Healthcare mutual fund category slumped 13.7% and surprisingly, not a single healthcare mutual fund could finish in the positive territory in the July-September period. Over the past one month, Healthcare has gained 3.7%. Growth prospects for the sector are strong thanks to strong fundamentals and an overestimation of the impact of recent events. Encouraging earnings results from several companies such as UnitedHealth Group Inc. (NYSE: UNH ) and Amgen Inc. (NASDAQ: AMGN ) helped the health care sector to stage a rebound in October. BlackRock Health Sciences Opportunities R (MUTF: BHSRX ) gained 2.4% over the past one month. Since October 1, BHSRX has improved 2.8%. BHSRX invests most of its assets in health sciences and related sectors such as health care equipment and supplies, health care providers and services, biotechnology, and pharmaceuticals. BlackRock Health Sciences Opportunities R currently carries a Zacks Mutual Fund Rank #3. Japan Stock Expectations of additional stimulus, rising corporate profitability and attractive valuations are driving the Japan mutual funds. Japan’s benchmark Nikkei 3000 confirmed the momentum with a 10.9% surge since October 1. Japanese companies’ earnings have improved a lot since the launch of Abenomics courtesy of the declining Yen. Nominal GDP has actually turned upward since 2013, after 20 years of sideways movement. Many are expecting Bank of Japan to come up with higher asset purchases in the coming months. Over the past one month, the Japan category has gained 3.7%. Commonwealth Japan (MUTF: CNJFX ) boasts one-month gain of 2.5%. Since Oct 1, CNJFX has jumped 8.5%. CNJFX invests the majority of its assets in securities and depositary receipts that include American Depositary Receipts, Global Depositary Receipts and European Depositary Receipts. The securities are issued by Japanese firms and are economically tied to the country. Commonwealth Japan currently carries a Zacks Mutual Fund Rank #3. Original post .