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4 Consumer ETFs To Ride On Holiday Optimism

Despite a weak start, the holiday season gained a firmer footing. This is especially true given the modest retail sales data for November and an improved consumer sentiment data for December. After months of sluggish spending, retail sales rose a modest 0.2% in November, representing the largest increase since July. Meanwhile, consumer confidence improved for the third consecutive month in December, with the preliminary University of Michigan sentiment index reading 91.8, up from 91.3 in November (read: 5 ETFs for Loads of Holiday Shopping Delight ). Solid job additions, slowly rising wages and cheap fuel are providing consumers extra money to spend on a wide range of products including electronics and appliances, clothing, sporting goods and books, and at restaurants and bars. In particular, spending increased 0.8% on clothing, 0.6% on electronics and appliances, and 0.8% at sporting goods and hobby stores. The strong trend is likely to continue for the rest of the holiday shopping season given an improving U.S. economy, a recovering housing market and stepped-up service activities. The National Retail Federation (NYSE: NRF ) expects total holiday sales in November and December (excluding autos, gas and restaurant) to grow at a solid pace of 3.7%. Though this marks a deceleration from last year’s growth rate of 4.1%, it is well above the 10-year average of 2.5%. Investors should note that online sales have superseded brick-and-mortar retail sales this year with mobile shopping playing a crucial role. Online sales are projected to grow 6-8% to $105 billion. ComScore expects online sales to jump 14% year over year to $70.06 billion for the full holiday season (November and December), outpacing the growth of brick-and-mortar retail sales. Given the holiday cheer, investors should cycle into the consumer discretionary space in order to obtain a nice momentum play. While looking at individual companies is certainly an option, a focus on the top-ranked consumer discretionary ETFs could be a less risky way to tap into the same broad trends (see: all the Consumer Discretionary ETFs here ). Top Ranked Consumer Discretionary ETF in Focus We have found a number of ETFs that have the top Zacks ETF Rank of 1 or ‘Strong Buy’ rating in this space and are thus expected to outperform in the months to come. While all the top-ranked ETFs are likely to outperform, the following four funds could be good choices. These funds have enjoyed a strong momentum and have potentially superior weighting methodologies that could allow them to continue leading the consumer space in the coming months. PowerShares DWA Consumer Cyclicals Momentum Portfolio ETF (NYSEARCA: PEZ ) This product tracks the DWA Consumer Cyclicals Technical Leaders Index. It holds 38 stocks having positive relative strength (momentum) characteristics, with none holding more than 5.4% of assets. This approach results in a large cap tilt at 43%, followed by 31% in mid caps and the rest in small. About 30% of the portfolio is dominated by specialty retail while hotel restaurants and leisure, textiles apparel and luxury goods, and airlines round off the next three positions with double-digit exposure each. The fund has managed $277.8 million in its asset base while trades in a lower average daily volume of 58,000 shares. It charges 60 bps in annual fees and added about 0.7% over the past one month. First Trust Consumer Discretionary AlphaDEX ETF (NYSEARCA: FXD ) This follows an AlphaDEX methodology and ranks stocks in the consumer space by various growth and value factors, eliminating the bottom ranked 25% of the stocks. This approach results in a basket of 129 stocks that are well spread out across each security, with none holding more than 1.7% of assets. About 49% of the portfolio is focused on mid cap securities with specialty retail being the top sector accounting for nearly one-fourth of the portfolio, closely followed by media (15.8%). FXD is one of the popular and liquid ETFs in the consumer discretionary space with AUM of $2.4 billion and average daily volume of 456,000 shares per day. It charges a higher 63 bps in annual fees and gained 0.9% over the past one month. Market Vectors Retail ETF (NYSEARCA: RTH ) This fund provides exposure to the retail segment of the broad consumer space by tracking the Market Vectors US Listed Retail 25 Index. It holds about 26 stocks in its basket with AUM of $147.6 million, while average daily volume is light at around 62,000 shares. Expense ratio came in at 0.35%. It is a large-cap centric fund that is heavily concentrated on the top firm Amazon.com (NASDAQ: AMZN ) with 15.3% share, closely followed by Home Depot (NYSE: HD ) at 8.9%. Sector wise, specialty retail occupies the top position with 29% share, followed by a double-digit allocation each to Internet & catalogue retail, hypermarkets, drug stores, and health care services. The product has added 5.3% over the past month. SPDR S&P Retail ETF (NYSEARCA: XRT ) This product tracks the S&P Retail Select Industry Index, holding 104 securities in its basket. It is widely spread across each component as none of these holds more than 1.47% of total assets. Small-cap stocks dominate about two-thirds of the portfolio while the rest have been split between the other two market cap levels. In terms of sector holdings, apparel retail takes the top spot with 22.3% share while specialty stores, automotive retail, and Internet retail also have a double-digit allocation each. XRT is the most popular and actively traded ETF in the retail space with AUM of about $948.4 million and average daily volume of more than 4.1 million shares. It charges 35 bps in annual fees and gained 2.5% in the past one month. Link to the original post on Zacks.com

The Fed And SLV – What’s Ahead?

Summary The FOMC is expected to raise rates this week. How will this decision impact SLV? Whether the Fed raises rates or not, isn’t the only issue to consider. The FOMC is expected to convene this week and decide whether it’s time to hit lift off and raise rates. While rates are still expected to remain low, even a modest hike of 0.25 basis points could be enough to send down the iShares Silver Trust ETF (NYSEARCA: SLV ). But the direction of the silver market won’t only rely on the whether the Fed raises rates or not. Other considerations also matter including what’s the trajectory of the future rate hikes, the wording of the statement, the revised outlook for next year, and Chair Yellen’s press conference just to name a few. How will the Fed expected hike move the price of SLV? Let’s breakdown what’s up ahead for SLV. Based on the implied probabilities , the market expects three rate hikes in 2015-2016 with a very likely hike in December – a little over 80% chance, the highest level in months. But with an 80% chance this still gives some room for uncertainty in the markets. (click to enlarge) Source: Fed-watch If the Fed does move along with the hike, it’s likely to bring down the price of SLV as it did back in the last FOMC meeting when the Fed stated it’s ready to raise rates in December. Is the market ready for a hike? When it comes to the reasoning for raising rates the Fed sees that the U.S. labor market is on course to full employment with unemployment rate at 5%, an average of over 200,000 jobs were added a monthly basis in 2015 and wage growth at 2.3%. Also, U.S. core CPI is at 1.9%, which isn’t far off the Fed’s 2% target . And the Case-Shiller home price index showed that prices have been steadily climbing in the past three years; while prices aren’t at record high levels of mid-2006, they are still high enough to sustain a rise in mortgage rates and weed out any possible bubbles that may be forming in the real estate market. The same could be said about the stock market. The flip side for keeping rates unchanged is that the labor market may not be in a good enough shape to sustain higher rates with “real unemployment rate” or U6 rate is close to 10% and participation rate remains low. Moreover, the expected rising cash rates will make it even harder for the Fed to reach its 2% inflation goal. And low commodities prices aren’t helping. Having said that, the Fed is still expected to raise rates this meeting. And higher rates won’t do any good for SLV. From the perceptive of the stronger U.S. dollar, a stronger dollar could push down SLV. After all, the rally of the U.S. dollar in recent weeks, up to the last couple of weeks, seemed to have contributed to the weakness of SLV, as indicated in the chart below. (click to enlarge) Source: FRED and Google finance Bear in mind, however, that the correlation between the two isn’t too strong at -0.26 during 2015. But the correlation has intensified lately: Over the past couple of months it reached -0.4. So keep an eye out for the direction of U.S. dollar, which is likely to keep rising if the Fed moves on with normalization. Beyond this time’s rate hike Looking beyond the expected rate hike, the Fed is likely to issue a statement with a dovish tone reiterating that future hikes won’t be every other meeting and will spread apart in 2016 – something that will be backed by the dot plot. Chair Yellen will also try to calm the markets by assuring the strength and stability of the U.S. economy and how another hike won’t be decided any time soon (the term “data dependent” will be thrown a lot – as it always is). The FOMC will also release its dot plot about the cash rate. Back in September, the FOMC anticipated rates will rise to 1.4% by the end of next year and 2.6% by the end of 2017. The trajectory of the cash rate could also have an impact on the direction of the price of SLV. On this issue, if the FOMC were to revise down its outlook about the cash rates, and it’s a very likely scenario, this could partly offset the adverse impact the rate hike in the upcoming meeting will have on precious metals prices. This could translate to keeping SLV from tumbling down in the coming months. Unless the Fed surprises the market, the short term outlook of SLV is still likely to be downward. The expected rise in the U.S. dollar could keep driving down SLV. On the other hand, if the Fed cuts down again its outlook for the cash rate in 2016 and beyond, this could, down the line, keep the price of SLV from further plunging in the medium term. For more please see: Will Higher Physical Demand for Silver Drive Up SLV?

Materials ETFs Surge On Dow Chemical, DuPont Chemistry

The latest merger talks between chemical giants Dow Chemical (NYSE: DOW ) and DuPont (NYSE: DD ) might provide a fresh lease of life to the long-ailing material sector. This is especially true as total earnings from the basic material sector were down 18.8% on 214.4% lower revenues as of December 4. The potential merger is rumored to be worth about $130 billion and split the business of the new entity into three new, per sources , namely material sciences, specialty products and agrochemicals. As of December 9, Dow had a market cap of $66.01 billion, while DuPont had a market cap of $65.28 billion. The news was brought to light by The Wall Street Journal . However, there is no assurance of the merger and talks could even disintegrate. If at all the deal is cracked, it would require regulatory clearances in several countries, per Reuters. No comment was made by either of the concerned entities. Both firms are striving to cut their underperforming assets and are gradually shifting to the high-growth areas. In the latest concluded third quarter, Dow Chemical maintained its streak of earnings beat for eight successive quarters. Strong performance by the Plastics segment backed by a lower cost of raw materials like oil and natural gas drove this outperformance. Dow Chemical also raised its quarterly dividend by 10% to 46 cents, which is the highest in the company’s history, reflecting its core strength. However, Dow’s farm chemicals and seeds unit is reeling under pressure for about a year. On the other hand, DuPont beat earnings estimate on cost containment, but its revenues and profits slipped on a strong dollar as the company is heavily exposed to international markets and a soft agriculture business due to soft demand for crop protection products, per Reuters. In such a situation, joining forces would be a win-win case as the duo can cash in on each other’s strength. CNBC estimated a cost synergy of $3 billion from the likely merger. As soon as the news became viral, Dow and DuPont shares climbed about 11.9% each on elevated trading volumes. Plus, Dow Shares advanced about 0.6% after hours of December 9, while DuPont shares returned about 0.1%. Dow shares rose on 4.3 times the regular volume, while DuPont rose on 3.8 times the daily volume. Dow Chemical has a Zacks Rank #2 (Buy) and has a Value score of ‘B’ and a Growth score of ‘A’ despite hailing from a sector which is in the bottom 25% in the Zacks universe. DuPont has a Zacks Rank #3 (Hold). Solid price performance by these two chemical bellwethers led to a rally in material ETFs that are heavily invested in these two stocks. Though these funds have an unfavorable Zacks ETF Rank of 4 or’ Sell’ rating, they gained in the range of 2.1% to 3.3% on December 9 and are on investors’ radar for the weeks ahead. Materials Select Sector SPDR (NYSEARCA: XLB ) The most popular material ETF follows the Materials Select Sector Index. This fund manages about $2.18 billion in its asset base and trades in heavy volume of around 7.5 million. The ETF charges 14 bps in fees per year from investors. In total, the fund holds about 30 securities in its basket with DOW and DD taking the top two spots, with over 11% allocation each. In terms of industrial exposure, chemicals dominates the portfolio with three-fourth share, while ‘metals and mining’ and ‘containers and packaging’ round off the top three positions. XLB is off about 6.4% so far this year (as of December 9, 2015) but rose over 3% post the news. iShares U.S. Basic Materials ETF (NYSEARCA: IYM ) This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 53 stocks in its basket. The fund has AUM of $353 million and charges 43 bps in fees and expenses. Volume is good as it exchanges around 106,000 shares a day. DOW and DD occupy the top two positions in the basket, with over 11% of assets each. The product is heavily skewed toward the chemical segment, as it makes up for more than three-fourths of the portfolio while steel, ‘forestry and paper’, ‘metals and mining’ receive minor allocations to IYM. The fund is down 10.7% year to date (as of December 9, 2015), but jumped over 3.3% in the key trading session. Vanguard Materials ETF (NYSEARCA: VAW ) This fund has amassed about $1.1 billion in its asset base and offers exposure to 120 stocks by tracking the MSCI U.S. Investable Market Materials 25/50 Index. The ETF has 0.12% in expense ratio. Here, DOW and DD are the top two firms accounting for nearly 8% share each. Chemicals make up for nearly 70% of assets, while ‘container and packaging’ and steel also make a nice mix in the portfolio. The fund is down 8.9% in the year-to-date frame (as of December 9, 2015), but added over 2.1% following the merger news. Fidelity MSCI Materials Index ETF (NYSEARCA: FMAT ) This fund provides exposure to more than 120 materials stocks with AUM of $68.8 million. This is done by tracking the MSCI USA IMI Materials Index. Here too, DOW and DD are the top two firms with nearly 8% allocation. Chemicals accounts for 69.7% share, while ‘container and packaging’, and ‘metals and mining’ round off the top three spots with double-digit exposure each. The ETF has 0.12% in expense ratio. The fund was up about 2.3% on December 9 but has lost 8.8% so far this year. Original post .