Tag Archives: lightbox

How To Play The Choppy Market With Cheap Smart Beta ETFs

The global stock market has been shaky, with a series of woes related to China and oil price. While the number of headwinds is raising questions on the health of the global economy, domestic growth seems to be on track with a spate of encouraging data lately. Amid heightened volatility and uncertainty, investors are seeking some smart stock selection strategies to alleviate the risks in the market. One such strategy is smart beta, which seeks to deliver better risk-adjusted returns, and has the potential to outperform the market even in turbulent times, while keeping the cost low. This strategy has been gaining immense popularity in recent years given its unique features and incredible stock selection methodology. As per PowerShares , smart beta is the fastest-growing segment of the ETF industry, with a staggering growth of 21% over the past three years. It currently accounts for 12% of the total ETF industry (see all the ETF categories here ). Why Smart Beta? The smart beta strategy helps to capture market inefficiencies in a transparent way by adding extra metrics, like dividends, volatility, revenue, earnings, momentum, equal weight and other fundamental factors, to the market cap or rules-based indices. It often closes the gap between passive and active investing. Also, it takes specific factors from the active management universe at a lower cost and instills it in a passive listed fund. As a result, the smart beta strategy offers the best of both active and passive strategies, providing investors an opportunity to increase portfolio diversification, reduce risk and enhance returns (alpha generation) over time. While the promise of smart beta is great, the strategy has certain drawbacks, including concentration issues, higher turnover and lower trading volumes. Though backtest results showed their outperformance over longer periods, the strategy could lag during a specific time period or in a particular economic cycle. Still, investors could earn above-average returns by selecting the right ETFs according to the market conditions or trends. Smart Beta ETFs in Focus The space is crowded with a variety of products, including the simplest equal-weighting, fundamental-weighting and volatility/momentum-based weighting methodologies. However, dividend ETFs are the primary drivers of smart beta growth this year, followed by low volatility and value factor. As such, we have highlighted four smart beta ETFs that are suitable for investors in the current choppy market and are low-cost choices in their specific fields. PowerShares S&P 500 High Dividend Portfolio ETF (NYSEARCA: SPHD ) The lure of dividend ETFs is back, as yields are at lower levels and volatility is at its peak. While there are several smart beta ETFs targeting dividend investing, SPHD could be an excellent choice. This fund follows the S&P 500 Low Volatility High Dividend Index and holds 50 securities, which have historically provided high dividend yields and low volatility. It is widely spread out across individual securities, as each holds less than 3.7% of assets. From a sector look, financials takes the top spot at 20.5%, while utilities, industrials and consumer discretionary round off the next three with a double-digit exposure each. The fund has so far managed assets worth $811.8 million, while volume is solid, trading at around 256,000 shares per day. The expense ratio came in at 0.30%. iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) Given the high level of volatility, investors could be well protected with USMV. This is the largest and most popular ETF in the low volatility space, with AUM of $9.7 billion and average daily volume of 2.6 million shares. It offers exposure to 169 U.S. stocks having lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. The expense ratio comes in at 0.15%. The fund is well spread across a number of components, with each holding less than 1.7% share. From a sector look, financials, healthcare, consumer staples and information technology occupy the top positions, with double-digit exposure each. The fund has a Zacks ETF Rank of 2 or “Buy” rating with a Medium risk outlook. iShares MSCI USA Quality Factor ETF (NYSEARCA: QUAL ) Though the chance of rate hikes this month faded out given the ongoing financial instability, a slew of encouraging data lately points to a rate hike sometime later this year, putting the spotlight on quality ETFs like QUAL. This fund tracks the MSCI USA Sector Neutral Quality Index and provides exposure to the stocks with positive fundamentals, like high return on equity, stable year-over-year earnings growth and low financial leverage. This results in a basket of 123 securities that are pretty spread across a number of sectors and securities, with none holding more than 5.11% of assets. Information technology, financials, healthcare and consumer discretionary each accounts for double-digit exposure. The product has amassed more than $2 billion in its asset base and charges just 15 bps in annual fees from investors. However, average trading volume is solid, at more than 295,000 shares per day. SPDR Russell 1000 Momentum Focus ETF (NYSEARCA: ONEO ) With the receding fears of a recession in the U.S., investors could tap the upcoming stock rally with this momentum ETF. This fund provides exposure to the large cap U.S. stocks having a combination of core factors (high value, high quality and low size characteristics) with high momentum characteristics. This is easily done by tracking the Russell 1000 Momentum Focused Factor Index, and the approach results in a broad basket of 908 securities that are widely diversified, with none holding more than 0.83% of assets. Consumer discretionary takes the top spot at 20.2%, while producer durables and financial services round off the next two spots with double-digit exposure each. ONEO is new to the space, having accumulated $319.5 million in its asset base within three months. It charges a lower fee of 20 bps per year and trades in solid volume of around 148,000 shares. Original Post

Emerging Markets Back On Track: 5 Outperforming ETFs

Emerging markets, which were the worst hit by slowing economic growth, China turmoil and the prospect of higher interest rates in the U.S., seem to have been rebounding in recent weeks. This is especially true as the two most popular ETFs – the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) and the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) – climbed over 5% in the past five days against gains of 3.4% for the iShares MSCI ACWI ETF (NASDAQ: ACWI ) and 3% for the SPDR S&P 500 ETF (NYSEARCA: SPY ) , suggesting that the worst might be over. Impressive gains came on the back of stabilization in commodity prices, hopes of additional stimulus from central banks from Asia to Europe, and China’s latest step to arrest the slowdown that led to some gains in emerging market currencies. Additionally, investors’ lack of hope for a rate hike anytime soon fueled the rally in the stocks. Further, data from the Institute of International Finance, which showed that capital flows into emerging markets turned flat in February after seven straight months of outflows, injected fresh optimism into the emerging markets. Notably, net emerging market outflows decreased to $200 million last month, with Latin America pulling in the maximum capital of $2.7 billion, followed by inflows of $1.7 billion in Africa and the Middle East, $1.5 billion in Europe and $300 million in Asia. Apart from positive developments, low valuations made these stocks tempting. As a result, several emerging market ETFs performed remarkably well over the past five days. Of those, we have highlighted the ones that emerged as the true winners of this short-covering rally. PowerShares FTSE RAFI Emerging Markets Portfolio ETF (NYSEARCA: PXH ) – Up 6.4% This ETF follows the FTSE RAFI Emerging Markets Index and offers exposure to the largest emerging market stocks based on four fundamental measures – book value, cash flow, sales and dividends. Holding 336 securities in its basket, the fund allocates no more than 3.4% in a single security. Financials (31%) and energy (22.6%) take the top two spots. In terms of country holdings, about one-fourth of the portfolio goes to Chinese firms while Taiwan, Brazil, and Russia round off the next three spots with a double-digit exposure each. The fund has amassed $282.1 million in its asset base, and trades in a good volume of around 265,000 shares a day. It charges 49 bps in annual fees from investors and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. iShares MSCI BRIC ETF (NYSEARCA: BKF ) – Up 5.7% This fund targets the four BRIC countries with highest exposure of 57.1% in China, 19.6% in India, 13.7% in Brazil and the rest in Russia. It tracks the MSCI BRIC Index and holds 308 stocks in its portfolio. However, it is skewed towards the top firm – Tencent Holdings ( OTCPK:TCEHY ) – at 6.82%. Other firms hold no more than 4.84% of assets. In terms of sector exposure, financials dominates the fund return with 30% of the portfolio, followed by information technology (18.4%) and energy (12.4%). The fund has accumulated $154.9 million in AUM and trades at a lower volume of 21,000 shares per day on average. It charges 72 bps in expense ratio and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a Medium risk outlook. EGShares Emerging Market Consumer ETF (NYSEARCA: ECON ) – Up 5.5% This ETF targets the consumer sector of the emerging markets by tracking the Dow Jones Emerging Markets Consumer Titans 30 Index. It holds 30 stocks in its basket with heavy concentration on the top firm – Naspers ( OTCPK:NPSNY ) – at 10.3%. The other firms hold less than 5.7% share. From a country look, South Africa occupies the top position with one-fourth of the portfolio while China and Mexico round off the top three with over 16% share. The fund has amassed $549.6 million in its asset base and sees solid average trading volume of more than 352,000 shares. The expense ratio comes in at 0.83%. Schwab Emerging Markets ETF (NYSEARCA: SCHE ) – Up 5.5% This fund tracks the FTSE Emerging Index, holding 776 stocks in its basket. None of the securities accounts for more than 4% of total assets. The product is slightly tilted towards financials at 25%, closely followed by technology (14%) and energy (8%). Here again, China takes the top spot at 26.5% while Taiwan and India receive a double-digit allocation each. SCHE is one of the popular and liquid options in the emerging market space with AUM of $1.5 billion and average daily volume of 848,000 shares. It charges 14 bps in fees per year from investors and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. First Trust Emerging Markets Small Cap AlphaDEX ETF (NYSEARCA: FEMS ) – Up 5.5% This fund follows the NASDAQ AlphaDEX Emerging Markets Small Cap Index and targets the small cap segment of the emerging market space. Holding 206 securities, the fund is well spread out across each component as each security holds less than 1.5% share. Taiwanese firms take the top spot at nearly 24.2%, closely followed by China (18.2%) and Brazil (12.4%). From a sector look, about one-fifth of the portfolio is allocated to information technology while financials, industrials, and consumer discretionary round off the next three spots with a double-digit allocation each. The product is often overlooked by investors, as depicted by AUM of $36.3 million and average daily volume of roughly 22,000 shares. The expense ratio comes in higher at 0.80%. Original Post

5 Real Estate Fund Picks On Record Construction Outlay

The real estate industry is off to a solid start this year ignoring the winter weather, which always acts as a resistance. Construction outlay touched a record high in January, while building permits remained unchanged. Existing home sales also posted record gains in January indicating that the housing industry is firmer than what most believed. In February, the NAHB/Wells Fargo housing market index that reflects home builders’ sentiment continued to remain above the 50 mark, indicating improvement. Moreover, historically low mortgage rates and a rise in wages is expected to give the real estate industry a boost. Hence, it will be prudent to invest in real estate mutual funds for solid returns. Construction Spending Rises in January Outlays on construction rose 1.5% to a seasonally adjusted annual rate of $1.41 trillion in January from the upwardly revised estimate of $1.12 trillion in December, according to the Commerce Department. Construction spending touched the highest level in January since Oct. 2007. Spending also rose a whopping 10.4% year over year. Money was spent on both private and public infrastructure. In the private sector, spending increased 0.5% to $831.41 billion in January from December’s figure of $827.35 billion. Single family residential construction and multifamily construction soared 7.7% and 30.4% from year-ago levels, respectively. Private non-residential construction too surged 11.5% year over year. Coming to the public sector, total spending increased 4.5% in January following a 3.3% monthly gain in December, with spending on educational facilities gaining a solid 11.7% year over year. This sharp rise in spending in January came in after outlays gained momentum last year. In 2015, construction spending was up 10.5% to $1.097 trillion from $993.4 billion in 2014. This steady rise in spending toward new construction is a telltale sign of the health of the real estate industry. Moreover, construction spending as a percentage of GDP rose 6.2% in the quarter ending Dec. 31. This is a commendable rise from the year-ago increase of 5.8%. However, if we consider the last 50 years average during this period, spending gained 8.4%. This shows that the rise is still below the historical average, which in many ways represents pent-up demand. Building Permits Remain Steady There is also good news on the construction permit front. Building permits are a precursor to construction activity. It indicates the future growth of housing activities. Building permits were revised to a seasonally adjusted rate of 1.204 million in January, unchanged from December’s figure, according to the Commerce Department. Earlier, it was reported that permits were down 0.2% to a seasonally adjusted rate of 1.202 million in January. Meanwhile, the other part of the report that shows the number of privately owned new houses on which construction has started was not so encouraging. In January, housing starts declined 3.8% to a 1.1 million annualized rate from 1.14 million in December. A crippling east coast winter storm was cited to be the reason behind this drop in housing starts. If this be so, it is a seasonal factor, which in the long run won’t leave any impact. Moreover, with the job market strengthening, it is expected that demand for more construction will increase. Average hourly earnings gained almost 0.5% in January from the previous month’s figure to $25.39. Average hourly earnings also rose 2.5% year over year. And this happened while the unemployment rate declined from 5% in December to 4.9% in January, the lowest since 2008. Record Home Sales Existing home sales for January hit the highest level since July last year. This indicates that the housing industry is in better shape than earlier estimated. Existing home sales increased 0.4% in January to a seasonally adjusted annual pace of 5.47 million. This is contrary to the consensus estimate of sales of homes owned earlier dropping to 5.33 million from December’s revised pace of 5.45 million. Additionally, existing home sales registered an annual increase of 11% in January, the largest yearly increase registered since Jul 2013. Pending home sales mostly track existing home sales. Pending home sales also advanced 1.4% in January from year-ago levels, its 17 straight month of year-on-year gains. However, purchase of new-single family homes decreased 5.2% in January from a year earlier. Nevertheless, home loan rates are drifting downward, which is expected to boost home sales in the near term. The 30-year fixed mortgage rate is about 3.8%, while the 15-year fixed loan rate is down to around 3.2%. Rates are currently hovering at historically low levels. 5 Real Estate Funds to Invest In Investors continue to remain optimistic about the outlook of the real estate industry in the U.S. According to KPMG’s 2016 Real Estate Industry Outlook Survey, 91% of real estate investors and executives surveyed said that real estate fundamentals will improve this year. Almost 74% of them believe foreign investment in the U.S. real estate will increase over the next 12 months. Record rise in construction activities, steady permits for building activities and healthy surge in home sales at a time when weather plays a spoilsport have boosted their sentiment. Add to this, low mortgage rates and you know why they sound so confident. Moreover, there are hints that spending plans on infrastructure may rise in the future. Democratic presidential candidates Hillary Clinton and Bernie Sanders have already promised to increase infrastructure investment. While Clinton plans to spend $275 billion on infrastructure, Sanders wants to deploy $1 trillion. Banking on these positive trends in the real estate industry, it will be prudent to invest in funds related to the housing space. Here we have selected five such real estate funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have positive 3-year and 5-year annualized returns, offer minimum initial investment within $5000 and carry a low expense ratio. Franklin Real Estate Securities A (MUTF: FREEX ) seeks to maximize total return. FREEX invests a large portion of its assets in equity securities of companies operating in the real estate industry. FREEX’s 3-year and 5-year annualized returns are 8.2% and 9.1%, respectively. Annual expense ratio of 0.99% is lower than the category average of 1.29%. FREEX has a Zacks Mutual Fund Rank #2. Neuberger Berman Real Estate A (MUTF: NREAX ) seeks total return. NREAX invests a major portion of its assets in equity securities issued by real estate investment trusts and other securities issued by other real estate companies. NREAX’s 3-year and 5-year annualized returns are 6% and 7.4%, respectively. Annual expense ratio of 1.21% is lower than the category average of 1.29%. NREAX has a Zacks Mutual Fund Rank #2. PIMCO Real Estate Real Return Strategy A (MUTF: PETAX ) seeks maximum real return. PETAX seeks to achieve its investment objective by investing in real estate-linked derivative instruments. PETAX’s 3-year and 5-year annualized returns are 4.3% and 11.6%, respectively. Annual expense ratio of 1.14% is lower than the category average of 1.29%. PETAX has a Zacks Mutual Fund Rank #2. Davis Real Estate A (MUTF: RPFRX ) seeks total return. RPFRX invests the majority of its assets in securities issued by companies principally engaged in the real estate industry. RPFRX’s 3-year and 5-year annualized returns are 6.6% and 7.9%, respectively. Annual expense ratio of 0.96% is lower than the category average of 1.29%. RPFRX has a Zacks Mutual Fund Rank #1. T. Rowe Price Real Estate (MUTF: TRREX ) seeks long-term growth. TRREX invests a large portion of its assets including borrowings for investment purposes in the equity securities of real estate companies. TRREX’s 3-year and 5-year annualized returns are 9.1% and 9.4%, respectively. Annual expense ratio of 0.76% is lower than the category average of 1.29%. TRREX has a Zacks Mutual Fund Rank #1. Original Post