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ETF Update: Smart Beta Launches As Far As The Eye Can See

Welcome back to the SA ETF Update. My goal is to keep Seeking Alpha readers up to date on the ETF universe and to gain some visibility, both for the ETF community and for me as its editor (so users know who to approach with issues, article ideas, to become a contributor, etc.). Every other week (depending on the reader response and submission volumes) we will highlight fund launches and closures for the week, as well as any news items that could impact ETF investors. As you might have noticed from the title, smart beta funds were on my mind this week. This might have something to do with the last 8 launches falling into that self-proclaimed category. It might also be due to a great read from Abnormal Returns, ” Finance blogger wisdom: smart beta bubble? ” In the linked article the author presented the following question to his online peers: The ‘smart beta’ or factor-investing bubble seems to be in full bloom. Is ‘smart beta’ simply the new active investing? If so, what happens to the entire fund industry which was built on the high fees associated with active management? This is a question that many have also covered on Seeking Alpha, but the most recent example is from Benjamin Lavine, CFA , whose article was posted on Wednesday (3/30). I would highly recommend it for any readers wondering what is behind the smart beta trend and how to interpret the term when considering an investment. With that disclaimer aside, let’s jump into the most recent round of smart beta launches: Fund launches for the week of March 21st, 2016 Principal expands into smart beta (3/22): The Principal Price Setters Index ETF (NASDAQ: PSET ) and the Principal Shareholder Yield Index ETF (NASDAQ: PY ) are the first smart beta launches from Principal Funds; both target mid- and large-cap domestic firms. However, PSET “focuses on companies with sustainable pricing power, consistent sales growth, high/stable margins, quality earnings, low leverage, and high levels of profitability,” while PY is for investors more concerned with “sustainable shareholder yield, strong cash flow generation, and capacity to increase dividends and/or buybacks.” Both funds are a relatively large departure from the Principal EDGE Active Income ETF (NYSEARCA: YLD ), which was launched in July 2015. This first venture into ETFs is an active fund investing across multiple income-producing asset classes in search of high-income investments. Victory Capital Management rolls out an emerging market fund (3/23): The Victory CEMP Emerging Market Volatility Wtd Index ETF (NASDAQ: CEZ ) was the third smart beta launch of the week. The in-house CEMP Emerging Market 500 Volatility Weighted Index “combines fundamental criteria with volatility weighting to seek to improve an investor’s ability to outperform traditional indexing strategies.” It is worth noting that the top countries represented at this time are Taiwan, China, South Korea and India; all of which are still considered emerging by MSCI , but many have argued that they are quickly evolving out of the traditional definition. Fund launches for the week of March 28th, 2016 Fund closures for the weeks of March 21st and 28th, 2016 Direxion Value Line Conservative Equity ETF (NYSEARCA: VLLV ) Direxion Value Line Mid- and Large-Cap High Dividend ETF (NYSEARCA: VLML ) Direxion Value Line Small- and Mid-Cap High Dividend ETF (NYSEARCA: VLSM ) ALPS Sector Leaders ETF (NYSEARCA: SLDR ) ALPS Sector Low Volatility ETF (NYSEARCA: SLOW ) ALPS STOXX Europe 600 ETF (NYSEARCA: STXX ) Global Commodity Equity ETF (NYSEARCA: CRBQ ) iSharesBond 2016 Corporate Term ETF (NYSEARCA: IBDA ) iSharesBond 2016 Corporate ex-Financials Term ETF (NYSEARCA: IBCB ) Have any other questions on ETFs or ETNs? Please comment below and I will try to clear things up. As an author and editor, I have found that constructive feedback is the best way to grow. What you would like to see discussed in the future? How can I improve this series to meet reader needs? Please share your thoughts on this first edition of the ETF Update series in the comments section below. Have a view on something that’s coming up or a new fund? Submit an article. 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.

Do Not Be Fooled By The Commodities ETFs Surge

The commodity market has seen a surge lately, with precious metals deserving a special mention. A falling dollar in the wake of a volley of subdued U.S. data points, concerns over global growth and an acute plunge in oil prices have marred the possibility of frequent rate hikes this year. This has taken the shine off the greenback and has helped the rally in precious metals in the first quarter of 2016 (read: ETFs to Rise if Dollar Falls ). Within the entire collection, the surge in gold was unparalleled, approaching ‘the best quarter in nearly 30 years’. Gold bullion ETF iShares Gold Trust ETF (NYSEARCA: IAU ) has advanced 16.1% so far this year (as of March 31, 2016). The ETFS Physical Silver Trust ETF (NYSEARCA: SIVR ) , which looks to reflect the price of silver bullion has added 11.5% this year, followed by a 9.6% jump in the ETFS Physical Platinum Shares ETF (NYSEARCA: PPLT ) . The PowerShares DB Precious Metals ETF (NYSEARCA: DBP ) is up 15.5% so far this year (as of March 31, 2016) (read: Gold ETFs Regaining Their Glitter ). Will This Uptrend Continue? Agreed, the Fed Chair has recently hinted at a ‘cautious’ stance on future policy tightening, taking into account the downside risks emanating from global financial market upheaval. And it also lowered its number of rate hike estimates for 2016 from four to two in its March meeting, which in turn has dampened the U.S. dollar. But will the dollar trend be so glum if the U.S. economy continues to offer back-to-back upbeat economic data. This is truer in the face of improving trend seen in the labor and manufacturing sector. Meanwhile, Q4 2015 U.S. GDP was adjusted higher, from the advanced estimate of 0.7% to 1.0% in the second estimate and then finally to 1.4% in the third reading. This gives cues of positive economic development at home. Moreover, the demand-supply scenario is hardly balanced in the commodity market. The issue is especially evident in case of agricultural prices. Supply glut and lower demand has been a longstanding problem in the agro-field. However, investors should note that despite the downbeat underlying fundamentals, the Teucrium Agricultural ETF (NYSEARCA: TAGS ) rose 6% in the last one month (as of March 31, 2016). Coming to the industrial metals, investors should note that many of these are highly susceptible to Chinese economic condition. Though China’s manufacturing sector has grown surprisingly in March since July 2015, the situation is still shaky. This might put a basket of commodities like copper and nickel in a false position, going forward. Crude oil also bounced back in the middle of the first quarter on output freeze talks by major oil producers. But with several energy companies getting delisted in recent times and supplies still brimming, the road ahead for crude is definitely slippery. Keeping aside the fundamentals, profit-taking activity after such a bullish run can also cause a dip in the commodity ETFs segment. As of March 31, 2016, the relative strength index of the SPDR Gold Trust ETF ( GLD) , the PowerShares DB Precious Metals ETF ( DBP) and SIVR stood at 50.28, 51.13 and 51.93, respectively, indicating that these are nowhere near the oversold territory. So, edgy investors should have a cautious approach toward commodity investing. However, as long as global growth issues keep dominating headlines, safe haven assets like gold will likely have an upper hand. So, even if other commodities fall flat, gold ETFs have higher chances of further price appreciation if the Fed stays dovish. Link to the original post on Zacks.com

Why Brazil ETFs Are Gaining Despite Economic And Political Risks?

The Brazil stock market has been one of the best performers this month with the benchmark Ibovespa gaining 16% as of March 24, 2016. Several Brazilian ETFs – Shares MSCI Brazil Capped (NYSEARCA: EWZ ), Market Vectors Brazil Small-Cap ETF (NYSEARCA: BRF ), iShares MSCI Brazil Small-Cap (NYSEARCA: EWZS ) and Global X Brazil Mid Cap ETF (NYSEARCA: BRAZ ) – have jumped 28.3%, 20.3%, 24.7% and 19%, respectively, in the last 30 days (as of March 24) (read: Catch these Brazil ETFs on a Rebound ). The rally came on the back of speculations regarding a change in government. Brazil has been witnessing a highly charged political drama since the beginning of this month when speculations that President Dilma Rousseff will be impeached were afoot. Even her major coalition partner, the Party of the Brazilian Democratic Movement (PMDB), is working on policies including welfare cuts if the Rousseff government is toppled and it comes to power. Meanwhile, the Brazilian Bar Association has filed a new request for impeachment proceedings to Congress. Rousseff is under political pressure regarding one of the largest corruption controversies in Brazil. The bribery scandal surrounding Brazil’s national petroleum company Petrobras continues to involve several of the country’s politicians. Investors in favor of a change in government believe that new leadership could be in a better position to revive the battered economy. Apart from that, markets were also buoyed by potential rate cuts by Brazil’s central bank. Although in its meeting earlier in March, the central bank kept the benchmark rate at 14.25%, several analysts believe that it might consider lowering interest rates later in the year. A rate cut could help boost consumer and corporate spending. Once the star performer of BRIC and emerging markets, Brazil is currently in shambles thanks to the economic slowdown and an endless streak of corruption scandals. A new government could infuse a fresh lease of life into the ailing economy which otherwise is expected to contract for the second straight year in 2016. After shrinking 3.9% in 2015, the economy is expected to contract by 3.5% this year. Other worrying factors include an increasing unemployment rate, rising inflation and the currency losing its value. Although it is questionable how long the rally will continue, a new government might revive the moribund economy. So, investors looking to tap into this market could consider the following ETFs in the days to come. EWZ in Focus This product tracks the MSCI Brazil 25/50 Index and is the largest and most popular ETF in the space with AUM of over $2.6 billion and average daily volume of more than 20.6 million shares. It charges 64 bps in fees per year from investors. Holding 61 stocks in its basket, the fund is highly concentrated in its top two holdings with one-fifth of the portfolio invested in them. In terms of industrial exposure, financials dominates the fund’s return at 35.5%, followed by consumer staples (19.8%), energy (10.3%) and materials (9.6%) (read: Fragile Five ETFs Not At All Fragile This Year? ). BRF in Focus This fund provides exposure to the small cap equities of the Brazilian market and tracks the Market Vectors Brazil Small Cap Index. The fund holds a total of 57 small cap stocks and has a total asset base of $76.9 million. The fund trades an average daily volume of 58,000 shares. The fund is well diversified with no stock holding more than 5% of weight. Among the different sectors, consumer discretionary and consumer staples occupy the top two positions with 42% of investment made in these two categories. Market Vectors Brazil Small-Cap ETF charges a fee of 60 basis points for the investment. Investors, however, should invest in small cap companies with caution as these are more volatile than their large cap counterparts. EWZS in Focus Another fund tapping the small cap companies of the Brazilian market is EWZS. The fund seeks to track the MSCI Brazil Small Cap Index. The fund has a total asset base of $19.9 million and trades in average daily volume of almost 43,000 shares. The fund holds a total of 52 stocks with none holding more than 6.5% weight. Among sectors, the fund has almost 40% of assets invested in consumer discretionary followed by industrials (16%) and financials (13.4%). The fund charges an expense ratio of 64 basis points (read: Emerging Market Crisis: 5 ETFs Down Over 30% in 2015 ). BRAZ in Focus The Brazil Mid Cap ETF has been designed to tap the mid cap market of Brazil. The fund seeks to track the Solactive Brazil Mid Cap Index. The fund, through an asset base of $3.3 million, taps 41 stocks. The fund has an average daily volume of 1,400 shares. However, BRAZ appears to be highly concentrated in the top 10 holdings with 51% of the assets invested in those securities. Among sectors, the fund has 19% invested in utilities, thereby holding the top position in terms of sector exposure. The investors pay an expense ratio of 69 basis points for the investment made in the fund. Original Post