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Retail Sales Back To Health; ETFs To Watch

Finally, the U.S. economy got a nice economic reading. Overall retail sales expanded 1.3% in April from March, representing the largest gain since March 2015. April retail sales beat economists’ forecast of a 0.8% rise . This came as a nice surprise as weaker-than-expected April’s job data gave investors a gloomy picture on the economic growth momentum a few days back. Sales excluding auto nudged up 0.8%. As per tradingeconomics , sales growth was witnessed in 11 out of the 13 major categories. Sales at motor vehicle and parts (up 3.2%), gasoline stations (2.2%) and non-store retailers (2.1%) were the major growth drivers. Web-based shopping saw a surge in the month as online retailers came up with the strongest sales gain since June 2014 . Moreover, the University of Michigan indicated that its consumer sentiment index rose 6.8 points to 95.8 early May, marking the strongest reading since June. Market Impact However, each of the three retail ETFs – the SPDR S&P Retail ETF (NYSEARCA: XRT ) , the Market Vectors Retail ETF (NYSEARCA: RTH ) and the PowerShares Dynamic Retail Portfolio ETF (NYSEARCA: PMR ) – lost despite the upbeat retail sales data. Following the release of data on May 13, 2016, XRT, RTH and PMR shed about 1.4%, about 1.2% and over 1.3% respectively. XRT gained slightly after hours of May 13. It seems that scars of lackluster retail earnings are prominent in investors’ mind. And thus, investors paid less attention to this reassuring data. Moreover, departmental stores like Nordstrom (NYSE: JWN ) shed big time on May 13 following earnings released on May 12, which took a toll on the retail ETFs. In any case, department stores have been under pressure lately. Macy’s (NYSE: M ) , Kohl’s (NYSE: KSS ) , J.C. Penney (NYSE: JCP ) and many others soured investors’ mood this earnings season. Road Ahead Whatever the case, April retail sales data indicates that the U.S. economy is progressing at a decent clip to end Q2 (given that consumer spending makes up about 70% of the U.S. GDP) and is less likely to stagger like it did in Q1. In the first quarter, the economy grew just 0.5%. Wage gains probably helped in pulling off the April retail sales data to some extent. In the future, a dovish Fed may act as a tailwind as a few more months of a cheap dollar should boost consumers’ purchases as well as the investing world. With this, market watchers may again start wagering on an earlier-than-expected Fed rate hike, though the other economic readings need to come in stronger for that. Investors should note that each of the three retail ETFs are Buy-rated now, with RTH having a Zacks ETF Rank #1 (Strong Buy), and XRT and PMR carrying a Zacks ETF Rank #2 (Buy). Since consumers splurged on restaurants and online shopping, investors can also look at T he Restaurant ETF (NASDAQ: BITE ) and the First Trust Dow Jones Internet Index Fund (NYSEARCA: FDN ) , which focuses on online retailers like Amazon (NASDAQ: AMZN ) and eBay (NASDAQ: EBAY ) . Original Post

Car ETF In Focus Post Mixed Auto Earnings

After strong U.S. light-vehicle sales in March, April witnessed a record. As a result, sales on a seasonally-adjusted annualized rate basis improved significantly. The automobile sector has been seeing certain favorable elements such as low fuel prices and a low interest rate environment. However, these factors failed to translate into impressive growth numbers during the first quarter as a stronger yen stood in the way of realizing the sector’s full potential. As per our Earnings Trend report, Tech and Auto sectors suffered the most negative price reaction of all the 16 sectors during this earnings season. Below we have highlighted in detail quarterly results of some of the major auto companies that have reported recently. Auto Earnings in Detail The largest U.S. automaker’s, General Motors Co. (NYSE: GM ), adjusted earnings of $1.26 per share for the quarter beat the Zacks Consensus Estimate of $1.01 by a wide margin. Earnings increased 46.5% year over year. Revenues in the reported quarter were $37.3 billion, up 4.5% year over year, beating the Zacks Consensus Estimate of $35.7 billion. The stock has shed 5.2% since reporting earnings (as of May 13, 2016). The second-largest carmaker by sales, Ford Motor Co. (NYSE: F ) , posted adjusted earnings per share of 68 cents in the first quarter, up 39 cents from the prior-year quarter and ahead of the Zacks Consensus Estimate of 43 cents. Revenues increased 11% to $37.7 billion and surpassed the Zacks Consensus Estimate of $36.1 billion. For 2016, the company expects pre-tax profit, earnings per share, revenue and automotive operating margin to be equal to or higher than 2015 levels. The stock has lost 3.2% since releasing earnings. Japanese automaker, Honda Motor Co., Ltd. (NYSE: HMC ), reported a loss per share of ¥51.85 (46 cents) in the fourth quarter of fiscal 2016 (ended March 31, 2016) as against earnings of ¥45.45 (40 cents) in the year-ago quarter. The Zacks Consensus Estimate was for earnings of 49 cents per share. However, consolidated net sales and other operating revenues escalated 4.8% year over year to ¥3.66 trillion ($32.46 billion). The figure also surpassed the Zacks Consensus Estimate of $31.88 billion. The year-over-year increase can be attributed to higher revenues from automobile and financial services business operations. For fiscal 2017, Honda expects revenues to decline 5.8% to ¥13.75 trillion ($7.64 trillion). The stock lost 4.8% since it reported earnings. Another Japanese automaker, Toyota Motor Corporation (NYSE: TM ), posted earnings of $2.40 per ADR in its fiscal 2016 fourth quarter, beating the Zacks Consensus Estimate of $2.07. However, the company’s consolidated revenues fell 2.1% year over year to ¥6.97 trillion ($60.6 billion) and were short of the Zacks Consensus Estimate of $63.1 billion. Toyota’s consolidated revenue guidance of ¥26.5 trillion ($252.4 billion) for fiscal 2017 reflects a 6.7% decline from fiscal 2016. The stock is down 4.4% (as of May 13, 2016). While Ford and General Motors reported better-than-expected earnings and revenues for the first quarter, Honda’s quarterly earnings and revenues for the quarter fell short of estimates and Toyota reported mixed results. This puts the spotlight on the exclusive auto ETF, the First Trust NASDAQ Global Auto Index Fund (NASDAQ: CARZ ), which has a sizable exposure to the above-mentioned stocks. CARZ lost more than 2.7% (as of May 13, 2016) in the last 10 days. Let us take a look at this ETF in detail. CARZ in Focus This ETF tracks the NASDAQ OMX Global Auto Index, having exposure to the automobile manufacturers across the globe. The product holds 37 stocks in the basket with Honda, Ford, General Motors and Toyota placed among the top five holdings with a combined allocation of nearly 31.5% of fund assets. Other firms hold less than 5% of assets. In terms of country exposure, Japan takes the top spot at 35.4% while the U.S. takes the second spot having a 23.6% allocation, followed by Germany and South Korea with 19.5% and 8% allocations, respectively. The ETF is neglected with $39.6 million in AUM and sees light trading volume of around 9,500 shares. The product is a bit expensive with 70 bps in annual fees and currently has a Zacks ETF Rank #3 or “Hold” rating with a High risk outlook. Original post

New ETF Offers Investors A High-Yield Haven

By Alan Gula In early 1998, Russia was hemorrhaging foreign exchange reserves. A number of factors were feeding into worries about Russia’s debt sustainability, including the Asian financial crisis in 1997, a decline in the price of crude oil, political instability, and widening fiscal deficits. Emergency loans from the International Monetary Fund (IMF) and the World Bank did little to stem the tide. On August 17, 1998, Russia devalued its currency (the ruble) and chose to default on its debt. The Russian crisis serves as a warning: Even government bonds can be very risky. Is the Risk Worth the Reward? Today, Russia’s five-year government bonds yield around 9%. In fact, Russia’s sovereign bonds are among the highest yielding of any country, as you can see in the following table: In a world seemingly starved for yield, these rates are all rather high. Indeed, very few investors like the sovereign debt in the table above, because the perceived risks are significant. Several countries’ economies on this list have suffered damage from the plunge in commodity prices, and many are in the throes of political turmoil or nasty recessions. There’s a lot to be worried about. Hence, these bonds are unpopular. But if popular investments should usually be avoided, then could these unloved bonds actually be attractive investments? High-Yield Sovereigns Typically, “high-yield” refers to sub-investment grade corporate bonds, or junk bonds. In ” Finding Yield in a 2% World ,” Mebane Faber, Chief Investment Officer at Cambria Investment Management, back-tested a high-yield government bond strategy. The universe comprised 30 countries from the Global Financial Data database and is sorted based on nominal yield. The top one-third of the bonds are bought, with periodic reconstitution. The results were fairly surprising. From 1950 to 2012, the high-yield strategy actually outperformed an equal weighting of all countries in the universe by around 2% per annum. The outperformance was also consistent across decades, including both rising and falling interest rate environments. The returns were U.S. dollar-based, but over the very long term, local real returns should be similar. The high-yield bond portfolio also seems to have outstanding diversification benefits. The table below compares the performance metrics for a traditional 60/40 portfolio with those of portfolios having 20% and 40% allocations to sovereign high-yield bonds. As the allocation to high-yield government bonds increases, returns rise, volatility decreases, and maximum drawdowns (peak-to-trough declines) are reduced. The more favorable risk/reward relationship is also shown by the rising Sharpe Ratio. Miraculously, adding unpopular, high-yielding sovereign bonds to a traditional portfolio can actually reduce risk, while increasing returns. Now, for most retail investors, buying sovereign bonds issued by Indonesia would prove challenging, to say the least. But there’s now a viable option… ETF to the Rescue Luckily, Faber’s firm launched the Cambria Sovereign High Yield Bond ETF (NYSEARCA: SOVB ) earlier this year. SOVB is one of the many new exchange-traded funds (ETFs) that gives investors convenient and cheap access to promising strategies. The ETF systematically buys the highest-yielding sovereign and quasi-sovereign bonds with sufficient liquidity. SOVB’s annual expenses are 0.59%, which is reasonable for an ETF that has exposure to smaller bond markets. For example, the WisdomTree Emerging Market Local Debt ETF (NYSEARCA: ELD ) has an expense ratio of 0.55%. Clearly, the data show that high-yielding government bonds are attractive long-term investments. Far more often than not, the worst-case scenario – such as a default or currency crisis – doesn’t materialize. Thus, investors wind up more than fairly compensated for risk exposures via the higher yields. And now that there’s a high-yield government bond ETF, I don’t want to hear any more complaints about the dearth of yield in this environment. Original Post