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November 2015 U.S. Fund Flows Summary

By Tom Roseen For the third month in four investors were net redeemers of fund assets, withdrawing $19.1 billion from the conventional funds business (excluding ETFs) for November. For the fifth consecutive month stock & mixed-asset funds suffered net redemptions, handing back some $24.0 billion for November (their largest net redemption since December 2014), while for the fifth month in six fund investors were net sellers of fixed income funds, removing $3.9 billion from the macro-group for November. For the second month in a row money market funds witnessed net inflows, taking in $8.8 billion for November. Despite a better-than-expected jobs report at the beginning of November, M&A news in the biotech industry, and a jump in financials, investors remained wary during the month in anticipation of the Federal Reserve’s raising interest rates in December. The Labor Department said the U.S. economy added 271,000 jobs for October-above the consensus-expected 185,000. Softer European Union gross domestic product data, weak economic reports from China, and worse-than-expected retail sales data mid-month led to one of the largest weekly losses in months. A large slide in oil prices placed a further pall over equities. However, comments by Fed policy makers indicating they would raise interest rates in a slow and careful manner, accompanied by news that the European Central Bank (ECB) will combat low inflation by deploying stimulus measures in December, helped ease investors’ concerns, leading to one of the largest weekly gains in the S&P 500 in almost a year. Strong earnings reports and an increase in quarterly dividends from the likes of Intuit and Nike were offset by news of slowing growth in emerging markets and by ongoing geopolitical concerns. Energy and mining shares were hit particularly hard during the month as concerns over excessive oil supplies and disappointing Chinese economic data played on investor psyche. The Mixed-Asset Funds macro-classification (+$4.5 billion) attracted the only net inflows of Lipper’s five equity macro-classifications, while USDE funds experienced the largest outflows (-$23.1 billion). Large-cap funds (-$9.3 billion) suffered the largest monthly net redemptions of the capitalization groupings for the fourth consecutive month. Again, in contrast to its open-end fund counterpart, the ETF universe witnessed its tenth consecutive month of net inflows, taking in $24.1 billion for November. For the third month in a row authorized participants (APs) were net purchasers of equity ETFs-injecting $23.7 billion (their largest net inflows since March), and for the fifth month in a row they were also net purchasers of bond ETFs-although injecting only $0.5 billion for November. Surrounded by uncertainty and looking for greater clarity by the ECB on its proposed monetary easing, for the fourth month in five APs’ appetite for USDE ETFs topped that for all other types of equity ETFs. The macro-classification witnessed the strongest net inflows (+$14.1 billion) of Lipper’s five equity-related macro-classifications, followed by World Equity ETFs (+$5.7 billion), Sector Equity ETFs (+$4.4 billion), and Mixed-Asset ETFs (+$0.3 billion). The Alternatives ETFs macro-classification (-$0.8 billion) suffered the only net outflows for the month. If you’d like to read the entire November 2015 FundFlows Insight Report with all its tables and charts, please click here .

Yen ETF Gains On Bank Of Japan Stimulus Changes

Unexpected modifications in the quantitative easing program by Bank of Japan (BOJ) on Friday helped the Japanese currency yen to move higher against the U.S. dollar. BOJ took some moderate steps to boost the sluggish Japanese economy and achieve its inflation target rate. Following the announcement, the yen gained nearly 1.2% against the dollar. BOJ’s New Steps in Focus Japan’s central bank announced a number of judicious changes without expanding the volume of its annual asset purchasing program it has been following for the last three years. Though it maintained the volume of bond purchasing at around 80 trillion yen ($660 billion) per year, the bank opted for raising the Japanese government bonds’ (JGBs) average maturity from 7-10 years to 7-12 years. The bank also revealed its plan of purchasing all JGBs to be issued next year. BOJ also announced that under this program, it will allocate 300 billion yen of assets annually in purchasing ETFs that seek to follow the JPX-Nikkei Index 400, which comprises companies that carry out operation without violating the corporate-governance criteria. The central bank’s intention was to boost capital expenditure and wages – an important parameter of an economy – through this step. This was in addition to the BOJ’s annual allocation of 3 trillion yen in ETFs, which started in late 2014. Will It Work? The changes in economic stimulus came on the back of concerns that BOJ’s quantitative easing program that started three years ago has done little for the economy. Despite the bond purchasing program – popularly known as Abenomics – that had aimed at achieving economic growth, the economy slid into contraction territory in the second quarter with a year-on-year GDP decline of 0.5%. However, according to the latest estimate, the economy rebounded strongly in the last quarter to witness a GDP growth rate of 1%, contrary to the earlier estimate of a contraction of 0.8%. Meanwhile, it was reported that the output expanded at an annual pace of 1.6% in the last three quarters. Also, spending by households in the last quarter saw an increase of 0.5%, indicating that the QE program is not a complete failure. Though the bank’s inflation target of 2% has not yet been achieved, BOJ indicated that it will do whatever it takes to reach the goal. Haruhiko Kuroda, Governor of BOJ said: “I’d like you to understand that we have taken those measures so we will be able to quickly adjust policy if we ever reach a conclusion that [further] action is needed to achieve the price-stability target at an early time.” He even added: “If risks to growth and price rises materialize, and if additional easing becomes necessary as a result, I certainly think we will have to undertake bold measures.” Yen ETF – FXY Gains Divergence in economic policies between the two major economies, the U.S. and Japan, played an important role in boosting the yen against the U.S. dollar on Friday. Last week, the Fed announced the first rate hike in almost a decade. The Fed finally pulled the trigger, raising benchmark interest rates by a modest 25 bps to 0.25-0.50% for the first time since 2006. Like the yen, CurrencyShares Japanese Yen ETF (NYSEARCA: FXY ) that tracks the value of the yen against the price of the greenback also gained 1.2% on Friday following the BOJ announcement. This $252.8 million fund charges 40 basis points as fees. FXY also returned 0.9% in the past six months as the yen, which is considered a classic safe haven asset continue to attract investor focus. FXY has a Zacks ETF Rank #3 (Hold) with a High risk outlook. Apart from FXY, popular Japanese ETFs such as iShares MSCI Japan (NYSEARCA: EWJ ), WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) and Deutsche X-trackers MSCI Japan Hedged Eq (NYSEARCA: DBJP ) will also remain on investors’ radar in the coming months as they will track the prospect of the changes in economic stimulus. However, EWJ, DXJ and DBJP declined 1.3%, 2.7% and 2.6%, respectively, following the yen’s gain.

Retail ETFs In Focus This Holiday Season

As a pioneer in retail business, the U.S. provides ample growth opportunities for all types of retail companies. From growth perspective, retail ranks among the dominant U.S. industries and employs an enormous workforce. Retail sales represent approximately 30% of consumer spending, which itself accounts for more than two-thirds of the economy. The U.S. economy is on the growth path driven by lower oil prices and an improved job market that is counteracted by certain spillover effects from the global economy. However, this is not likely to come in the way of U.S. economic growth and the labor market boom. The Federal Reserve chairwoman Janet Yellen and the president of the New York Fed William Dudley recently expressed the possibilities of a U.S. rate hike in December, the first since the 2007-09 economic crisis and recession. The key basis for the hike will be a fall in unemployment rate and the return of inflation to the Central Bank’s 2% target over the medium term. From the economic standpoint, we see a gradual improvement in the labor market, as unemployment rates have declined to the lowest level since September 2008. According to the recent data from the Bureau of Labor Statistics, the unemployment rate for November has declined to 5%, same as in October. In November, 211,000 people were hired, reflecting improved employment prospects. Given a rebounding U.S. economy, the retail space is bubbling with optimism. A gradual recovery in the housing market and manufacturing sector, along with an improving labor market and lower gasoline prices, are favoring the economy and playing key roles in raising buyers’ confidence. We expect this positive sentiment to translate into higher consumer spending. The recent U.S. GDP data (second estimate) revealed that the economy grew at a rate of 2.1% in the third quarter, despite a strong dollar and overseas weakness, while consumer spending increased 3.2%. Though the pace of economic growth decelerated from the second quarter due to inventory correction, analysts are hopeful of a pickup in momentum in the final quarter that primarily constitutes the holiday season. The holiday season is the time when retailers are on their toes, flooding the markets with offers and promotions. Apart from price-matching policies, retailers will sweep buyers off their feet with early-hour store openings, huge discounts, promotional strategies and free shipping on online purchases. Since the season accounts for a sizeable chunk of yearly revenues and profits, retailers are gung ho to drive footfall. In this regard, retailers are efficiently allocating a major portion of their capital toward a multi-channel growth strategy focused on improving merchandise offerings, developing IT infrastructure to enhance web and mobile experiences of customers, giving their stores a facelift, developing fulfillment centers to enable speedy delivery, implementing an enterprise-wide inventory management system as well as enhancing their relationship with existing and new customers. ETFs present a low-cost and convenient way to get a diversified exposure to this sector. Below we have highlighted a few ETFs tracking the industry: SPDR S&P Retail (NYSEARCA: XRT ) Launched in June 2006, SPDR S&P Retail ( XRT ) is an ETF that seeks investment results corresponding to the S&P Retail Select Industry Index. This fund consists of 104 stocks, the top holdings being Wayfair Inc. (NYSE: W ), Pep Boys – Manny, Moe & Jack (NYSE: PBY ) and Abercrombie & Fitch Co. (NYSE: ANF ), representing asset allocation of 1.44%, 1.42% and 1.39%, respectively, as of December 11, 2015. The fund’s gross expense ratio is 0.35%, while its dividend yield is 1.12%. XRT has $637 million of assets under management (AUM) as of December 10, 2015. Market Vectors Retail ETF (NYSEARCA: RTH ) Initiated in December 2011, Market Vectors Retail ETF ( RTH ) tracks the performance of Market Vectors U.S. Listed Retail 25 Index. The fund comprises 26 stocks, the top holdings being Amazon.com Inc. (NASDAQ: AMZN ), Home Depot Inc. (NYSE: HD ) and Wal-Mart Stores Inc. (NYSE: WMT ), representing asset allocation of 15.25%, 8.73% and 6.39%, respectively, as of December 11, 2015. The fund’s net expense ratio is 0.35% and dividend yield is 0.37%. RTH has managed to attract $147.2 million in AUM till December 10, 2015. PowerShares Dynamic Retail (NYSEARCA: PMR ) PowerShares Dynamic Retail ( PMR ), launched in October 2005, follows the Dynamic Retail Intellidex Index and is made up of 30 stocks that are primarily engaged in operating general merchandise stores such as department stores, discount stores, warehouse clubs and superstores. The fund’s top holdings are The Kroger Co. (NYSE: KR ), Costco Wholesale Corporation (NASDAQ: COST ) and L Brands, Inc. (NYSE: LB ), reflecting asset allocation of 5.54%, 5.25% and 5.16%, respectively, as of December 11, 2015. The fund’s net expense ratio is 0.63%, while its dividend yield is 0.71%. PMR has managed to attract $22.4 million in AUM as of December 10, 2015. Original post .