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S&P 500 Again Shows Weakness: Go Short With These ETFs

After the furious rally since February 12, the S&P 500 has again lost momentum and slipped into the red from a year-to-date look. This is especially true, as investors are apprehensive as to whether the stocks will be able to sustain their gains in the coming weeks given the bleak corporate earnings picture and renewed concerns on global growth uncertainty (read: Top and Flop Zones of Q1 and Their ETFs ). As we are heading into a weak Q1 earnings season, volatility is expected to increase though stabilization in energy prices and the dollar could act as a catalyst. According to the Zacks Earnings Trend , earnings growth will be deep in the negative territory for the fourth consecutive quarter with 10.9% estimated decline. In fact, the magnitude of negative Q1 revisions was the highest among recent quarters with 14 out of the 16 Zacks’ sectors witnessing negative revisions over the past three months. Utilities and retail were the only two exceptions. Revenues will likely be down 2.2% on modestly lower net margins. The release of minutes this week showed that the Fed is unlikely to raise interest rates in April, signaling that weak global growth could hurt the ongoing recovery in the U.S. economy. Further, continued rise in the Japanese currency dampened investors’ faith in central banks’ ability to boost growth across the globe. All these factors coupled with relatively higher valuations have led to risk-off trade, pushing the safe havens higher (read: Q1 ETF Asset Report: Safe Havens Pop; Currency Hedged Drop ). Added to the downbeat note is the International Monetary Fund warning. The agency stated that problems in emerging markets, such as China, could lead to poor stock performance in the U.S. and other developed countries. Given this, the S&P 500 will likely see rough trading ahead and investors could easily tap this opportune moment by going short on the index. There are a number of inverse or leveraged inverse products in the market that offer inverse (opposite) exposure to the index. Below, we highlight those and some of the key differences between each: ProShares Short S&P500 ETF (NYSEARCA: SH ) This fund provides unleveraged inverse exposure to the daily performance of the S&P 500 index. It is the most popular and liquid ETF in the inverse equity space with AUM of nearly $2.5 billion and average daily volume of nearly 7 million shares. The fund charges 90 bps in annual fees. ProShares UltraShort S&P500 ETF (NYSEARCA: SDS ) This fund seeks two times (2x) leveraged inverse exposure to the index, charging 91 bps in fees. It is also relatively popular and liquid having amassed nearly $2 billion in AUM and more than 13.5 million shares in average daily volume. ProShares Ultra S&P500 ETF (NYSEARCA: SSO ) With AUM of $1.6 billion, this fund also seeks to deliver twice the return of the S&P 500 Index, charging investors 0.89% in expense ratio. It trades in solid volumes of more than 4.6 million shares a day on average. ProShares UltraPro Short S&P500 (NYSEARCA: SPXU ) Investors having a more bearish view and higher risk appetite could find SPXU interesting as the fund provides three times (3x) inverse exposure to the index. Though the ETF charges a slightly higher fee of 93 bps per year, trading volume is solid, exchanging more than 6.6 million shares per day on average. It has amassed $728.3 million in its asset base so far. Direxion Daily S&P 500 Bear 3x Shares (NYSEARCA: SPXS ) Like SPXU, this product also provides three times inverse exposure to the index but comes with 2 bps higher fees. It trades in solid volume of about 6.6 million shares and has AUM of $476.8 million. Bottom Line As a caveat, investors should note that such products are suitable only for short-term traders as these are rebalanced on a daily basis. Still, for ETF investors who are bearish on the equity market for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world. Original Post

Best Performing Bond ETFs Of Q1

Chances for the 33-year bull run in the bond market to fall flat in 2016 increased when the Fed enacted a rate hike in December 2015 after almost a decade. But in reality, bonds kept bouncing throughout the first quarter on a low-yield environment in most developed markets across the world. Thanks to China-led global market worries and the 12-year plunge in oil prices, the global market went berserk to start this year. All these buried risk-on sentiments and boosted relatively safer fixed-income securities in the quarter, pulling bond yields down. In fact, the impact of the global financial market turmoil was so deep-rooted that the Fed halved its number of rate hike estimates for 2016 from four to two in its March meeting. Also, Fed chair Yellen reaffirmed a ‘cautious’ stance on future policy tightening. Needless to say, the very move dragged down the U.S. benchmark bond yields and pushed up its prices. Notably, yields on 10-year Treasury notes dropped 41 bps to 1.83% (as of March 30, 2016) in the quarter, leading U.S. Treasury valuation to soar. Meanwhile, deflationary threats led the central banks of Japan and Eurozone to widen their already ultra-easy monetary policies. At its January-end meeting, BoJ set its key interest rate at negative 0.1%. BoJ then hinted at further cuts in interest rates if the economy fails to improve desirably. In Europe, the ECB president Mario Draghi turned super dovish in March by raising the monthly bond purchase size to EUR 80 billion from 60 billion previously. Also, ECB lowered the deposit facility rate to negative 0.4%, down from the previous rate of negative 0.3%. It also cut its main refinancing rate and marginal lending rates by 0.5% each to zero percent and 0.25%, respectively. Quite expectedly, the twin boosters of easy money policy globally and a delayed rate hike in the U.S. made fixed-income securities a winner in the first quarter. It would thus be interesting to note the ETFs that were the leaders in the bond space during the quarter. Returns are as per xtf.com . 25+ Year Zero Coupon U.S. Treasury Index Fund (NYSEARCA: ZROZ ) ZROZ follows the BofA Merrill Lynch Long US Treasury Principal STRIPS Index, which focuses on Treasury principal STRIPS that have 25 years or more remaining to final maturity. It charges just 15 basis points in expenses while the 30-day SEC yield is 2.62% currently (as of March 29, 2016). ZROZ has added 14.3% so far this year (as of March 30, 2016). The fund has a Zacks ETF Rank #2 (Buy) with a High risk outlook. DB German Bund Futures ETN (NYSEARCA: BUNL ) German bonds and the related ETFs also made an impressive rebound as these offer safety. Following extremely lower yields due to accommodative ECB policies, “German government bond yields are set to record their biggest quarterly fall in 4-1/2 years ” on March 31, 2016. The note looks to provide investors exposure to the U.S. dollar value of the returns of a German bond futures index, replicating the performance of a long position in Euro-Bund Futures. The note is up 14.3% so far this year (as of March 30, 2016). Vanguard Extended Duration Treasury ETF (NYSEARCA: EDV ) The fund seeks to match the performance of the Barclays U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index. This means that this benchmark zeroes in on fixed income securities that are sold at a discount to face value, and then the investor is paid the face value upon maturity. The fund charges 10 bps in fees. This Zacks Rank #2 ETF yields 2.71% annually. The fund has returned 13% so far this year (as of March 30, 2016). DB Japanese Govt Bond Futures ETN (NYSEARCA: JGBL ) Very low bond yields following Bank of Japan’s decision to push key interest rates to the negative territory to engineer the sagging economy were behind JGBL’s surge. Many analysts are of the view that ” negative bond yields are here to stay in 2016″ for Japanese bonds. The product looks to track the DB USD JGB Futures Index, which is intended to measure the performance of a long position in 10-year JGB Futures. JGBL advanced about 9.9% so far this year (as of March 30, 2016). PIMCO 15+ Year U.S. TIPS ETF ( LTPZ ) The fund tracks the BofA Merrill Lynch 15+ Year US Inflation-Linked Treasury Index and is up 9.6% so far this year (as of March 30, 2016). As U.S. inflation improved in the quarter, TIPS ETFs came into the limelight. Original Post

High Dividend Sector ETFs Hitting All-Time Highs

A few days back, the market was abuzz with faster-than-expected rate hike bets in the U.S. on hawkish tip-offs from some Fed officials after a dovish meeting in mid March. However, recently Fed chair Yellen put all hearsay to rest by emphasizing global growth issues. Also, the Fed chair indicated a ‘cautious’ stance that may be adopted by the U.S. central bank on the policy tightening issue going forward. Following the dovish statements, stocks and bonds soared. Investors should also note that yields on U.S. treasuries dropped following Yellen’s remarks. Below we discuss a few ETFs that popped after Yellen’s speech and could remain in focus ahead. In a falling yield environment, investors rushed to tap every possible option that can cater to their income need. Along with broader dividend funds, high yielding sector ETFs have also been witnessing strong pricing performance lately. Below we highlight a few winning sectors and their ETFs that hit all-time highs reflecting Yellen’s comments. Utilities Utilities usually have strong yields and are embraced by investors when Treasury bond yields fall. Also, the utility sector is considered a safer option when volatility levels spike. This sector is less volatile in nature and relatively immune to the market peaks and troughs. Moreover, the space is less exposed to currency translation due to lack of foreign coverage (read: Protect Your Portfolio with These Utility ETFs ). By virtue of their stronger yields and defensive nature, the following utilities ETFs touched all-time highs lately. The Utilities Alphadex First Trust (NYSEARCA: FXU ) hit an all-time high on March 31 2016. The fund added over 2.7% in the last five trading days (as of March 31, 2016) and yields about 2.85% annually and FXU has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Smart Beta ETFs That Stood Out Amid Market Volatility ). The Guggenheim S&P Equal Weight Utilities ETF (NYSEARCA: RYU ) hit an all-time high on March 31, 2016. The fund returned 2.6% in the last five trading days (as of March 31, 2016) and yields 3.20% annually and follows an index which is the equal weighted version of the S&P 500 Utilities Index. Real Estate Real Estate is also a highly interest rate sensitive sector. These firms are usually highly leveraged and face maximum interest rate risk in the REIT world. Now, REITs are required to distribute 90% of their annual taxable income through dividends which make them high dividend yield vehicles. With interest rates expected to remain subdued for longer and bond yields trending down, the Real Estate Select Sector SPDR ETF (NYSEARCA: XLRE ) hit an all-time high, adding about 2.2%, on March 29, 2016. The fund yields 2.06% annually (as of the same date). The fund was up over 3.7% in the last five trading days (as of March 31, 2016). Telecom Telecom, another defensive sector by nature, also offers investors solid dividend yields. The Fidelity MSCI Telecommunications Services Index ETF (NYSEARCA: FCOM ) hit an all-time high on March 31, 2016. The product advanced about 4.4% in the last five trading days (as of March 31, 2016). Consumer Staples Consumer staple stocks have been performing better in recent months as investors are slowly moving toward defensive sectors. Also, consumer staples stocks and ETFs are high yield in nature which put this sector in focus following Yellen’s speech. Also, many consumer staples stocks are rich in global presence and are likely to outperform amid falling dollar. The Fidelity MSCI Consumer Staples Index ETF (FTSA) touched an all-time high on March 31, 2016. The fund added about 1.5% in the last five trading days (as of March 31, 2016). The fund yields about 2.52% annually (as of March 31, 2016). Link to the original post on Zacks.com