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Earnings Or Oil – What Will Drive Financial ETFs Ahead?

The financial sector, which accounts for around one-fifth of the S&P 500 index, had a decent-to-downbeat Q1. Most big banks beat on the bottom line while very few lived up to analysts’ expectations on the top line. Modest gains in loan growth amid low interest rates were overshadowed by troubled investment banking activities and subdued fixed-income markets. Also, the energy sector weakness has been the key drag on the banking sector. This is because that U.S. banks have significant exposure to the long-ailing energy sector where chances of credit default are higher. In February, the S&P cut its outlook on several regional banks with the highest energy sector exposure, citing a likely increase in non-performing assets. Among the biggies, Wells Fargo (NYSE: WFC ) reported around $42 billion oil and gas credit in February. The situation is the same for J.P. Morgan, the energy loan of which accounts for 57% of the investment-grade paper. J.P. Morgan earlier noted that it ‘ set aside $600 million ‘ for loan losses emanating from the energy, metals and mining sectors. Against such a backdrop, a peek into the headline numbers of the Q1 earnings season becomes essential. If we go by the Zacks Earnings Trends issued on April 14, 2016, financial earnings are expected to fall 8.4% in Q1 on 1.8% higher revenues. Let’s take a look at the big banks’ earnings which released lately. Big Bank Earnings in Focus JPMorgan (NYSE: JPM ) reported first-quarter 2016 earnings of $1.35 per share, beating the Zacks Consensus Estimate of $1.26. Earnings were down 7% year over year. Net revenue of $24.1 billion was also ahead of the Zacks Consensus Estimate of $23.9 billion. Revenues declined 3% from the year-ago quarter. Citigroup’s (NYSE: C ) earnings from continuing operations of $1.11 for the quarter outpaced the Zacks Consensus Estimate of $1.04. However, earnings declined 26% on a year-over-year basis. Adjusted revenues at Citigroup tumbled 11% year over year to $17.56 billion. Also, the revenue figure missed the Zacks Consensus Estimate of $17.79 billion. Wells Fargo earned $0.99 a share in the first quarter, beating the Zacks Consensus Estimate by a penny but declining from the prior-year quarter’s earnings of $1.04 per share. Total revenue came in at $22.2 billion, beating the Zacks Consensus Estimate of $21.6 billion. However, revenues grew 4.2% year over year. Bank of America Corporation’s (NYSE: BAC ) first-quarter earnings of $0.21 per share lagged the Zacks Consensus Estimate by a penny. Further, the bottom line witnessed a year-over-year decline of 16%. Net revenue of $19.5 billion was down 7% year over year and below the Zacks Consensus Estimate of $20.5 billion. Morgan Stanley ‘s (NYSE: MS ) first-quarter earnings from continuing operations of $0.55 per share outdid the Zacks Consensus Estimate of $0.46 per share. The quarter’s earnings also reflect a significant decline from $0.85 per share earned in the prior-year quarter. Net revenue of $7.79 billion was down 21% year over year and shy of the Zacks Consensus Estimate of $8.34 billion. Goldman Sachs (NYSE: GS ) reported earnings per share of $2.68 in the first quarter of 2016, outpacing the Zacks Consensus Estimate of $2.57. However, the bottom line compared unfavorably with the year-ago figure of $5.94. Goldman’s net revenue slumped 40% year over year to $6.3 billion in the quarter. Also, revenues lagged the Zacks Consensus Estimate of $7.1 billion. Earnings Soft But What About Financial ETFs? Despite decent-to-downbeat results from banks in the last one week, the concerned ETFs were loved by investors on a rising risk appetite. Investors seemingly have downplayed the weak numbers from banks as they were already prepared for this blow. On the other hand, oil price staged a rebound lately, first on an expected output freeze deal in Doha which finally collapsed and then on a strike in Kuwait by oil workers. These showered gains on the below-mentioned financial ETFs lately. Each of the aforementioned companies have considerable exposure in funds like iShares U.S. Financial Services ETF (NYSEARCA: IYG ), PowerShares KBW Bank (NYSEARCA: KBWB ), Financial Select Sector SPDR (NYSEARCA: XLF ), U.S. Broker-Dealers Index Fund (NYSEARCA: IAI ) and Vanguard Financials ETF (NYSEARCA: VFH ). All the funds are in the green, having gained in the range of 3.7%-7% in the last five trading sessions (as of April 19, 2016). In any case, the broader market is appearing to follow the movements in oil lately and the financial sector investors are also seemingly doing the same. So, things are likely to be volatile in Q2 and investors are advised to stay on the sidelines. If the Fed again turns stringent in the near term, banks could see brighter days. Each of the aforementioned ETFs currently has a Zacks ETF Rank #3 (Hold). Original Post

Beyond Miners, 5 ETFs Crushing The Market To Start Q2

Overriding concerns over weak corporate earnings, U.S. stocks hit fresh highs of 2016. This is especially true as conservative earnings estimates are actually setting the stage for positive surprises. In fact, a handsome earnings beat by one of the six largest banks – JPMorgan (NYSE: JPM ) – spread optimism into financial sector, which is the backbone of the global economy. As per the Zacks Earnings Trend , earnings beat ratio for 8.8% of the S&P 500 companies that have reported so far is impressive at 71.9%. Additionally, better-than-expected trade data in China eased global growth fears, sending the stocks higher. Further, stabilization of crude oil at around $40 per barrel is the greatest achievement in the current oversupplied oil market. Though the dollar has been weakening since the start of the second quarter, it has gained some momentum this week on more stimulus hopes from Bank of Japan (read: 5 ETFs to Buy if Oil Stays at $40 ). Apart from these recent developments, the dovishness of the Fed, an accelerating job market, a pick-up in inflation and increasing consumer confidence have continued to brace the market. Meanwhile, the appeal for government bonds and precious metals has diminished on risk-on investors’ sentiment. That being said, we highlight five ETFs that are surging to start the second quarter and are expected to continue this trend. ALPS Medical Breakthroughs ETF (NYSEARCA: SBIO ) – Up 11.5% This fund targets companies with one or more drugs in Phase II or Phase III FDA clinical trials by tracking the Poliwogg Medical Breakthroughs Index. It is a small cap centric fund, having amassed $104.2 million in its asset base. The product holds 95 stocks in its basket with a well-diversified portfolio as each security holds less than 4.6% of assets. The product charges 50 bps in fees per year from investors and trades in a moderate average daily volume of about 77,000 shares. It has a Zacks ETF Rank of 3 or ‘Hold’ rating. WisdomTree Weak Dollar U.S. Equity ETF (NYSEARCA: USWD ) – Up 10.3% This fund offers exposure to export-oriented companies that may benefit from a weakening U.S. dollar by tracking the WisdomTree Weak Dollar U.S. Equity Index. It holds 201 securities in its basket with none accounting for more than 1.84% of assets. However, about one-fourth of the portfolio is dominated by information technology while industrials, health care, consumer discretionary and materials round off the next four spots with a double-digit exposure each. USWD is an unpopular an illiquid fund with AUM of $1.2 million and average daily volume of under 1,000 shares. Expense ratio came in at 0.33%. SPDR SSGA Risk Aware ETF (NYSEARCA: RORO ) – Up 10.3% This is an actively managed ETF that seeks to provide capital appreciation and competitive returns compared to the broad U.S. equity market. Holding 90 stocks in its portfolio, the fund is moderately concentrated across the firms with each holding less than 5.4% share. From a sector look, consumer discretionary, health care, consumer staples, financial services and utilities are the top sectors with a double-digit allocation each. It has managed $2 million in its asset base and charges 50 bps in annual fees. Volume is light exchanging less than 1,000 shares a day on average. United States Brent Oil Fund (NYSEARCA: BNO ) – Up 9.2% This fund provides direct exposure to the spot price of Brent crude oil on a daily basis through futures contracts. It has amassed $121.3 million in its asset base and trades in a good volume of roughly 267,000 shares a day. The ETF charges 75 bps in annual fees and expenses. SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP ) – Up 9.2% This fund provides an equal weight exposure to 60 firms by tracking the S&P Oil & Gas Exploration & Production Select Industry Index. Each holding makes up for less than 2.8% of the total assets. XOP is one of the largest and popular funds in the energy space with AUM of over $2 billion and expense ratio of 0.35%. It trades in heavy volume of around 19.1 million shares a day on average. The fund has a Zacks ETF Rank of 5 or ‘Strong Sell’ rating. Link to the original post on Zacks.com

Singapore ETFs In Focus Following Policy Easing

In a surprise move, the monetary authority of Singapore (MAS) eased policies on April 14, 2016. The step was taken to boost economic growth which halted in the first quarter of 2016. Notably, the Singapore Monetary Authority uses currency as a key tool to ease monetary policy rather than interest rates and resorted to a flat slope, budging from the prior target of a 0.5% annualized gain in the currency. However, no changes were made to the center of the band or the width, which is usually +/- 2%, per barrons.com. The preliminary estimates revealed that the economy grew 1.8% year over year in the first quarter of 2016, maintain the pace seen in the previous two quarters and slightly above 1.7% growth expected by the market. Sequentially, growth was flat on a seasonally-adjusted annualized basis, declining from 6.2% growth recorded in the fourth quarter and falling shy of the market expectation of 0.2% growth . MAS expects the economy to expand more moderately over the rest of the year. External shocks due to the slowdown in its major trading partners caused the worry. And if this was not enough, consumer prices in Singapore declined in February for 16 months in a row. So, the authority had to react to arrest the downtrend and revive this export-centric economy. The move instantly lowered the value of Singapore dollar which recorded the biggest plunge in eight months. Many analysts are speculating further policy easing given the dour economic scenario. Market Impact Though Singaporean stocks and the related ETFs have surged so far this year, the recent central bank comments point to the fact that the economy is reeling under pressure. China Renminbi devaluation and the recent weakness in the U.S. dollar also acted as headwinds to the Singaporean currency. Export-centric Asian economies like Singapore were thus forced to depreciate their currencies to stave off competitive pressure (probably) and rev up their exports while growth issues in China marred investing prospects of countries with close trade ties. However, the present situation is a bit dicey with the monetary easing opening room for growth while submissive central bank comments making investors wary. So, it is better to stay on the sidelines at the current level, wait for some definite improvement and obviously better entry points. The large-cap fund covering this economy’s equity market – iShares MSCI Singapore ETF (NYSEARCA: EWS ) – had a solid stretch in the last three-month period (as of April 14, 2016) gaining 16.9%. It has a Zacks ETF Rank #3 (Hold). We have briefly highlighted the ETF tracking the country below. EWS in Focus EWS is easily the most popular Singapore ETF on the market as it has about $550 million in AUM and an average daily volume of 1.8 million shares a day. The product charges 47 basis points a year from investors. With 28 stocks in its basket, this fund from iShares puts more than 50% of its total assets in the top five holdings, suggesting higher concentration risks. The financial sector actually makes up roughly half of the portfolio, leaving around 18% for industrials followed by 14.5% for telecommunication. EWS pays a solid yield of 4.06% annually (as of April 14, 2016), implying that it may be an income pick if payout levels hold. Original Post