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4 Sector ETFs Jump To Top Ranks As Q1 Earnings Hit

By now, we are all aware of the fact that the Q1 earnings season, which has just taken off, is going to be a soft one. Earnings of the S&P 500 index are likely to decline 10.3% in the first quarter while revenues are expected to fall 0.6% as per Zacks Earnings Trends issued on April 14, 2016. The key drag was the energy sector as evident from the 5.2% expected Q1 earnings decline from the ex-oil S&P 500 index, Revenues enter the growth territory (up 2.4%) if we rule out the energy sector weakness from the S&P 500. Notably, the energy sector is expected to report a 105.8% decline in earnings for Q1 on 29.8% lower revenues. But then, the other 15 sectors constituting the S&P 500 index (as per Zacks methodology) are not sturdy enough. Only six sectors will likely post mild-to-positive earnings growth this season with acute recessionary impact expected in basic materials (down 23.8%), industrial products (down 25.7%) and conglomerates (down 23.7%). Needless to say, stocks and the related ETFs will come under pressure post earnings releases of such sectors. Investors might be at a loss as to where to bet their money to reap the return of a bull market, without being perturbed by earnings weakness. For them, below are four sector ETFs that have soared to the top Zacks Ranks (#1 or #2) at the threshold of the earnings season (read: Winning ETF Strategies for Q2 ). Guggenheim S&P 500 Equal Weight Technology ETF (NYSEARCA: RYT ) – #2 (Buy) to #1 (Strong Buy) Technology ETFs were badly hit in the first quarter of 2016, having returned minutely or posting massive losses as risk-off sentiments loomed large. However, things took a turn for the better lately as a flurry of upbeat U.S. economic data and a dovish Fed whet investors’ risk appetite. The sector is expected to post 6.7% decline in earnings on 2.6% revenue growth. So, investors intending a momentum play in the tech space can bet on RYT which is an equal-weighted version of the S&P 500 Information Technology Index and gives exposure to a broader technology sector. RYT has a Medium risk outlook. Guggenheim S&P Equal Weight Health Care ETF (NYSEARCA: RYH ) – #3 (Hold) to #1 The scenario was almost the same for the broader healthcare sector which returned to health recently. A biotech rebound, compelling valuation, increasing merger and acquisition activities and several important product approvals act as tailwinds to the sector. The broader medical sector is projected to post 0.9% growth in earnings in Q1 on bumper 9.1% higher revenues. No points for guessing why investors should target this space right now. An intriguing bet on this sector is RYH which is an unmanaged equal-weighted version of the S&P 500 Health Care Index. RYH has a Medium risk outlook. Market Vectors Gaming ETF (NYSEARCA: BJK ) – #3 to #1 This gaming sector falls into the consumer discretionary category, which should be on a smooth road ahead on compelling valuation, expectations of a longer low-rate environment due to a dovish Fed and a softer dollar driving earnings of companies with considerable exposure in foreign lands. The consumer discretionary space looks better placed than many other sectors for the first-quarter earnings season. The sector is likely to record 1.8% earnings growth on 5.8% growth in revenues. The fund, BJK, gives investors exposure to the overall performance of the largest and most liquid companies in the global gaming industry. From a country look, U.S. takes the top spot at 34.0% while Australia and China round off the top three with a double-digit exposure each. IQ US Real Estate Small Cap ETF (NYSEARCA: ROOF ) – #3 to #2 As the U.S. Treasury bond yields are hovering at lower levels despite a slowly improving economy, the outlook for real estate is looking up. The sector performs well in a low-yield environment while a growing economy ensures demand for real estates. Investors can bet on this trend via ROOF which is made up of small-cap stocks – the best capitalization to play the recovering domestic economy. Plus, ROOF yields about 5.80% annually (as of April 14, 2016) and can act as a decent income destination for investors. Link to the original post on Zacks.com

Winning ETF Strategies For Q2

After the upheaval in the first quarter, the broader market is still far from even close to a bear market. The S&P 500 may be just 0.9% up from the year-to-date look (as of April 12, 2016), but the decline in the key U.S. index is merely 4% from the previous high . This points to a far better situation than a 10% decline from the previous high which defines a correction or a 20% fall from the previous high that makes it a bear market. However, this does not ensure a smooth road ahead. With the broader market blowing hot and cold every now and then, downside risks prevail in the ongoing second quarter. Agreed, factors driving the market now – especially oil price stabilization and the drop in the dollar – are somewhat favorable, but the near-term outlook of the broader market may turn glum given the expected downbeat earnings for Q1. After all, there are always panicky investors in the market who may just start dumping stocks following the underperformance in Q1 earnings. And if it turns out to be a herd investing pattern, it could ruin market returns despite a healing earnings trend from the second quarter itself. So, what should we do? Since it is difficult to predict whether the market will move up or go down from this point in Q2, it is better to shield yourself from all volatility. Thus, for investors, we shall detail the possible asset class movements in Q2 and the likely ETF bets. Dividend Exposure As far as global market investing is concerned, it’s better to stay diversified. However, since negative rates are prevailing in many developed economies, the drive for dividend will be higher. So, investors can tap products like First Trust Dow Jones Global Select Dividend Index ETF (NYSEARCA: FGD ), which yields about 5.16% annually or the iShares Core MSCI Total International Stock ETF (NYSEARCA: IXUS ) that offers about 2.85% in annual dividend yield. The case is similar back home. Thanks to the delay in further Fed rate hike, long-term yields are hovering at lower levels, making dividend ETFs popular at present. The WisdomTree Equity Income ETF (NYSEARCA: DHS ) and the iShares Core High Dividend ETF (NYSEARCA: HDV ) could be best suited for this play. Focus on Quality or Value in the U.S. Cautious investors may also hunt for dividends in high-quality value stocks rather than running after high-yielding products. In this vein, investors can buy the Vanguard Dividend Appreciation ETF (NYSEARCA: VIG ), which considers those companies that have a record of increasing dividends over time, or the PowerShares S&P 500 High Quality Portfolio ETF (NYSEARCA: SPHQ ), which provides exposure to the constituents of the S&P 500 index with long-term growth and stability of a company’s earnings and dividends. Yet another choice for this category is the PowerShares Dynamic Large Cap Value Portfolio ETF (NYSEARCA: PWV ). Which Capitalization to Bet on in the U.S.? The U.S. economy is making strides, with improving trends seen in the manufacturing, housing and labor markets. But the dollar is sagging on a dovish Fed. This makes a winning combination for mid-cap ETFs, as this spectrum bears the traits of both large and small caps. It has moderate international exposure, which will remain unharmed in a weaker dollar environment. However, a value quotient is desirable even in this area. Thus, we pick two mid-cap value ETFs for investors, namely the Guggenheim S&P MidCap 400 Pure Value ETF (NYSEARCA: RFV ) and the PowerShares Fundamental Pure Mid Value Portfolio ETF (NYSEARCA: PXMV ). Both carry a Zacks Rank #1 (Strong Buy). Where Will the Bond Markets Go? Bond ETFs had a stupendous run in Q1 and are likely to be loved by investors this quarter too. However, investors can tap investment-grade corporate bond ETFs this time around, rather than sticking to the safe Treasury bond ETFs. The SPDR Barclays Capital Long Term Corporate Bond ETF (NYSEARCA: LWC ), yielding about 4.05% annually, can be considered for this purpose. Should You Toss Out Currency Hedging from International Investing? Since the Fed vowed to take it easy with the policy tightening stance and hinted at just two rate hikes this year, the U.S. dollar is likely to be muted in the rest of Q2. So, currency-hedged ETF investing may not be a very popular concept this quarter. If global turmoil persists, the safe-haven currency, the Japanese yen, is likely to be stronger, and thus, the currency-hedging technique will not be that fruitful. Investors can thus take a look at the Buy-rated iShares MSCI Japan Minimum Volatility ETF (NYSEARCA: JPMV ) and the SPDR MSCI Japan Quality Mix ETF (NYSEARCA: QJPN ). These funds will help you navigate market volatility. The IQ 50 Percent Hedged FTSE Japan ETF (NYSEARCA: HFXJ ), with a Zacks Rank #3 (Hold), is another option to deal with the currency translation risk. As far as the European market is concerned, investors can ride on massive policy easing by investing in the WisdomTree Europe SmallCap Dividend ETF (NYSEARCA: DFE ). Original Post

Global Manufacturing Picks Up: ETFs To Watch

The month of March will be remembered for the revival in the manufacturing sector in the world’s two largest economies – the U.S. and China. While a stronger dollar and huge capex cuts by energy companies to fight back the plunge in oil prices hurt the U.S. manufacturing sector, soft demand in the wake of global growth worries can be held responsible for the overall global slowdown. However, things took a turn in March as signs of stabilization showed up. Let’s delve deeper into the data. Finally Chinese Manufacturing in Positive If we talk of manufacturing slowdown, China comes first to mind. But after posting sluggish factory output data since July 2015, the economy posted growth in March. China’s official manufacturing purchasing managers’ index (PMI) came in at 50.2 for March , which beat Reuters’ forecast of 49.3 and February’s reading of 49.0. Any reading at or above 50 suggests expansion in activity. While this official data considers larger companies, another index, namely Caixin Manufacturing PMI, considers smaller or medium-sized companies. Investors should note that the Caixin Manufacturing PMI for March also rose to 49.7 from 48.0 in February, “marking the first increase from the previous month in a year.” Improving Trend in the U.S. A five-month long losing streak also bucked the trend in the U.S. in March. The ISM manufacturing data expanded to 51.8 in March from 49.5 in February buoyed by new orders and increased output. The data came above the Wall Street Journal’s expectation of 50.5. Out of the 18 manufacturing industries, 12 reported expansion in March. What Cooks Up in the Euro Area? Coming to the Eurozone, the Markit Eurozone Manufacturing PMI came in at 51.6 in March 2016, surpassing a preliminary reading of 51.4 and 51.2 recorded in February. The reading also bettered the forecast of 51.4 . All is not well across the globe. But noticeable improvement in the big three gives us reasons to look at the below-mentioned international industrial ETFs. Global – iShares Global Industrials ETF (NYSEARCA: EXI ) The fund looks to track the S&P Global 1200 Industrials Sector Index. The $16.2 million ETF is heavy on the U.S. which takes about 53% of the basket. General Electric (NYSE: GE ) (8.62%), 3M Co. (NYSE: MMM ) (2.93%) and Siemens AG ( OTCPK:SIEGY ) (2.56%) are the top three stocks of the fund. The fund charges 48 bps in fees. It added 0.5% in the last one month (as of April 5, 2016). China – Global X China Industrial ETF (NYSEARCA: CHII ) The Global X China Industrial ETF seeks to provide investment results of the Solactive China Industrials Index. The $3.6 million fund charges 65 bps in fees. This fund is heavy on building and construction (34.4%) and machinery and equipment (31.6%) industries. The fund has exposure to about 40 stocks. CHII added 2.9% in the last one month (as of April 5, 2016). U.S. – Industrial Select Sector SPDR ETF (NYSEARCA: XLI ) This product tracks the Industrial Select Sector Index. General Electric occupies the top spot with an 11.7% allocation, while 3M, Honeywell (NYSE: HON ) and Boeing (NYSE: BA ) have a combined exposure of over 10% in the fund. XLI has garnered $6.65 billion in assets and trades in heavy volume of 13.8 million shares per day. It has a low expense ratio of 0.14%. The fund has the highest exposure to aerospace and defense (25.3%), followed by industrial conglomerates (21.6%). The product gained 2.4% in the last one month (as of April 5, 2016). Original Post