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Guggenheim Plans Another Equal-Weight ETF

Guggenheim, one of the country’s biggest ETF providers, was the first firm to offer strategic or smart beta ETFs with the launch of Guggenheim S&P 500 Equal Weight ETF (NYSEARCA: RSP ) in 2003. At the beginning of the year, Guggenheim had 15 equal weight ETFs with $12.6 billion in assets under management. Other equal weight ETFs by Guggenheim include Guggenheim S&P MidCap 400 Equal Weight ETF (NYSEARCA: EWMC ) and Guggenheim S&P SmallCap 600 Equal Weight ETF (NYSEARCA: EWSC ) . Continuing with this trend, the issuer has recently planned a new ETF targeting the U.S. large-cap space. Though some key information, including expense ratio, ticker and holdings, was not released, we have highlighted some of the main points of the proposed fund below. Guggenheim S&P 100 Equal Weight ETF in Focus As per the SEC filing , the proposed ETF seeks to track the performance of the S&P 100 Equal Weight Index before fees and expenses. The S&P 100 Equal Weight Index is an equal-weighted version of the S&P 100 Index, a subset of 100 common stocks of the S&P 500 Index. The index has the same securities as the capitalization weighted S&P 100, but each company in the S&P 100 Equal Weight Index is allocated a fixed weight. The S&P 100 Equal Weight Index measures the performance of the large-cap segment of the U.S. equity universe. The index uses an equal weighting strategy wherein each sector and the individual securities within each of the sectors are given equal weights. As such, concentration risk is expected to be pretty low in this fund. Presently, the index holds a well-diversified basket of 102 stocks. From a sectorial perspective, Information Technology, Financials and Industrials with weight of 15.2%, 14.8% and 14.3%, respectively, hold the top three holdings in the index (as of February 29, 2016). How Might it Fit in a Portfolio? The fund could be a good choice for investors seeking a diversified exposure to the U.S. large cap stocks. Currently, the U.S. markets are experiencing extreme volatility. Global growth concerns, escalating geopolitical tensions, a surge in the U.S. dollar and uncertainty over the timing of the next interest rate hike in the U.S. are some of the factors to be blamed for the volatility. Amid such volatile times, investors seek some smart stock-selection strategies to alleviate the risks in the market. Here is where equal weight ETFs comes into play. These funds do a great job in managing single-security risk, thanks to their equal allocation in all securities in the basket irrespective of market capitalization. As a result, it limits the risk of a severe downfall in any particular security, providing a nice balance in the portfolio. Additionally, with quarterly rebalancing, equal-weighted funds tend to cash in on the overvalued segments and reinvest in the underperforming ones, potentially allowing for outperformance if the trend reverses. But while these have a minimal concentration risk, they charge a hefty expense ratio compared to their fundamentally/capitalization weighted counterparts. ETF Competition As far as competition within the space is concerned, the fund could come up against Guggenheim’s very own product RSP or funds from other providers like PowerShares Russell Top 200 Equal Weight ETF (NYSEARCA: EQWL ) and PowerShares Russell 1000 Equal Wght ETF (NYSEARCA: EQAL ) . RSP is one of the most popular funds in its space managing an asset base of $8.7 billion and trading in good volumes of more than 1.2 million shares a day on average. The fund tracks the S&P 500 Equal Weight Index, which measures the performance of the top 500 U.S. companies in equal weights. Sector-wise, Consumer Cyclical, Industrials and Technology take the top three spots with more than 43% allocation. The fund charges 40 basis points and has returned 1.1% so far this year. EQWL, on the other hand, is comparatively less popular with an asset base of $34.1 million and trades in low volumes of roughly 2,000 shares. The fund tracks the Russell Top 200 Equal Weight Index to provide exposure to the U.S. large-cap equity market. The fund has an expense ratio of 0.25% and has lost 1.2% in the year-to-date period. Though the U.S. large cap space is not much crowded, the new fund if launched is nonetheless expected to face stiff competition from RSP, EQWS and EQAL. However, the fund might manage to build decent assets in case it charges less in fees, or if it manages to return more than the above two funds, should it pass regulatory hurdles. Original Post

Investors Should Sleep On Peru

By Jonathan Jones and Tom Lydon After several years of disappointing performances, Latin American equities are rebounding this year. While Brazil, the region’s largest economy, commands most of the attention, investors should sleep on Peru and the iShares MSCI All Peru Capped ETF (NYSEArca: EPU ) . Buoyed by higher commodities prices, EPU, the lone exchange-traded fund devoted to Peruvian stocks, is up 22% year to date, according to industry analyst ETF Trends . EPU is reflective of Peru’s status as a major miner of gold, silver and copper. The ETF devotes 46.4% of its weight to the materials sector and another 30.1% to financial services stocks. No other sector commands more than 8.8% of the ETF’s weight. Economic data is supportive of a bullish outlook on EPU and Peruvian stocks. “The latest data showed mining output slowed to 7.8% year over year, from a record high of 22.4% year over year in December, and construction, manufacturing and retail contracted by 2.7%, 3.9% and 2.6% year over year, respectively,” reports Dimitra DeFotis for Barron’s , citing Capital Economics data. EPU has come a long way from struggling amid lower gold and silver prices (Peru is a major producer of both metals) and wondering about Peru’s market classification. Index provider MSCI had previously warned that Peru was in danger of losing its emerging markets status and being demoted to the frontier markets designation. However, earlier this month, MSCI confirmed it is keeping Peru in the emerging markets group. The index provider did say that risks remain to Peru’s retention of emerging markets status. “MSCI warned earlier in mid-August that Peru could be downgraded to frontier market status as only three securities from the country had met the size and liquidity requirements for emerging market status,” according to Emerging Equity. “We still expect GDP growth to accelerate to around 3.7% in 2016, from 3.2% in 2015… it is too soon to worry about a renewed slowdown in growth in the first quarter of 2016. … Mining output is likely to rise further in 2016 as a number of copper mines expand production. What’s more, government spending is set to remain supportive as planned infrastructure projects continue to be implemented. We doubt the upcoming presidential election in April will change the outlook much, either, as all the leading candidates appear to be committed to continuing with the current government’s fairly orthodox economic policy,” said Capital Economics in a note posted by Barron’s. iShares MSCI All Peru Capped ETF Click to enlarge 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. Additional disclosure: The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

What To Do When You Miss The Move In An ETF

Every correction in the stock or bond market unfolds in a different manner. While our natural inclination is to try and make comparisons to prior events or rationalize statistical probabilities for a turn, there is no easy way to know when an investable bottom has truly materialized. From a valuation perspective, cheap can always get cheaper until it goes to zero. Similarly, from a technical perspective, lines of support can always be broken by new trends or forces that materialize in the midst of a decline. In recent years, it has become commonplace for sharp rallies or “V-bottoms” to form with very little notice to those who aren’t quick on the trigger. These are generally caused by capitulation near the low as sentiment reaches extreme negative readings. This fear ultimately leads to a snapback in price as an unforeseen catalyst sparks a rubber band effect. The problem is that it isn’t easy to time these events. Let me give you an example. Last year I wrote about the downtrend in junk bonds as risk averse investors were jumping ship at a breakneck pace. I prophesized that I would be a buyer of high yield in 2016 for my clients to take advantage of the widening spreads and relative valuation metrics. That type of premise looks prescient when you are sitting on the sidelines watching the iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA: HYG ) crater with cash to deploy. However, it becomes much more difficult to execute in real life prior to a sharp 10% rally that unfolds in a matter of just three weeks. I fully admit that we missed this opportunity. It may have been the result of being overly cautious or simply remaining skeptical that such a voracious move could materialize so quickly. Fortunately, we still have other risk assets in the portfolio that are able to meaningfully contribute to this recovery in the stock and credit markets. The conservative nature of our investment mandate dictates that I would rather look back with regret on a potential missed opportunity than suffer the consequences of an overly aggressive stab in the dark. We only know in hindsight how this picture unfolded and of course have yet to determine what the ultimate resolution will be. The question now becomes: was this an intermediate-term low or simply the result of an oversold asset demonstrating a sharp ramp that will ultimately fall apart over the coming months? There is no way to know with certainty what the outcome will be in the future. However, you do have a few options to consider when you’ve missed the boat on a big move: Buy anyways. It may seem silly to buy after a big run, but there is no law saying that a fund like HYG can’t move all the way back to its prior highs near $87. There is still another 8% of overhead space between its current price and that level. I’m not saying that event will occur with a high conviction, but you can’t rule it out either. Break up your allocation in pieces. Another way to play this opportunity is to break up your trade in smaller pieces. If you were planning on a 5-10% allocation, you may be able to break that into two or three parts in order to allocate equally over time. That gives you the flexibility to participate if the new trend continues without the all-in risk that you face in a single trade. Of course, the drawback is that you will wish you had just gone with the whole allocation if this succeeds. Transaction-free ETFs make for a very effective tool to accomplish this task. Have patience. There is nothing wrong with sitting and watching either. Time is on your side if you have been carefully managing your exposure and have other risk assets that are participating in the upside move. You may want to wait and see if some of the momentum gets worked off and this sector retraces a portion of its recent strength. Watching for a higher low to develop may be a potential entry opportunity that is waiting in the wings. Move on. My grandfather was early to the trend following philosophy four decades ago and used to tell me that “lost opportunity is better than lost money”. There is no doubt that both are equally frustrating. However, history has proven that there will always be fresh opportunities in the market that are simply waiting to be sniffed out. Putting one in the rear view mirror allows you to focus on new themes that may just be peaking over the horizon. Spending too much time on “shoulda, coulda, woulda” criticism is a drain on your time and resources. Those with the longest time horizons are typically best served by using weakness to their advantage in order to buy at lower prices and reap the rewards of long-term growth. Conversely, those with short-term time horizons are often jumpy to try and sidestep every drop or driven to leap at new possibilities before they have adequately proven themselves. I am optimistic that we will still get our shot to re-allocate more direct exposure to high yield credit at a time and price that suits our philosophy . A little patience now will likely pay off in spades as we continue to navigate our way through these choppy markets. 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. Additional disclosure: David Fabian, FMD Capital Management, and/or clients may hold positions in the ETFs and mutual funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell, or hold securities.