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Can Emerging Market ETFs Sustain The Rally?

After surviving a lackluster stretch, emerging market ETFs recoiled lately as a relief rally bolstered the demand for risky securities. The deterrents that came in its path earlier seem to have cleared as the U.S. rate hike bets have taken a backseat, marring the price of the greenback at the start of 2016. Impressive gains were noticed in commodity prices in the wake of a weaker dollar. Also, hopes of further stimulus from the eurozone and Japan, China’s relentless efforts to shore up its waning economy and the hunger for higher current income (as a drive for safety encouraged the need for fixed-income investing, which in turn affected U.S. Treasury bond yields) made emerging market space a rising star lately. The winning trend can be validated by 10.4% and 11.1% returns realized respectively by the two most popular ETFs, the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) and the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ), in the past one month (as of March 8, 2016), against gains of 7.6% for the all-world exchange-traded fund, the iShares MSCI ACWI index ETF (NASDAQ: ACWI ), and a 7% uptick in the S&P 500-based fund, the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ). As of now, the drivers of the rally look fragile. Investors may cheer the recent reserve requirement ratio cuts in China, but these have hardly boosted the Chinese markets. Rather, weak Chinese trade data has been pushing its market down, along with other emerging market securities. On the other hand, the recent rally in oil prices is anything but stable, keeping a check on the broad-based global market recovery. Meanwhile, the U.S. economy came up with some upbeat economic numbers on manufacturing, jobs, inflation and consumer confidence. All these once again brought back rate hike talks on the table. If any such cues are given by the Fed in its upcoming meeting, the emerging markets will once again lose luster. All in all, the operating backdrop is not all bright. So, investors should practice caution while targeting this investing arena. Below, we highlight a few ETFs that can be considered in the days to come (see all emerging market ETFs here ). High Yield – WisdomTree Emerging Markets Equity Income ETF (NYSEARCA: DEM ) As foreign investors normally park their money in the riskier emerging market bloc for higher yields, what could be a better choice than DEM? This $1.31 billion ETF holds about 320 stocks. Though the fund is heavy on trouble zones like China, Russia and Brazil, and might see a sell-off ahead, a 30-day SEC yield of 6.29% would provide some protection against capital erosion. Also, the fund has highest exposure in the relatively better-placed zone, Taiwan. The fund has a Zacks ETF Rank #3 (Hold) and is up about 6% this year (as of March 8, 2016). Low Volatility – iShares MSCI Emerging Markets Minimum Volatility ETF (NYSEARCA: EEMV ) A low-volatility portfolio is yet another key to long-term success. For investors seeking exposure to the emerging markets, EEMV could be an intriguing pick. The $2.9 billion ETF charges 25 bps in fees. In total, the fund holds over 250 stocks in its basket, with each accounting for less than 1.71% share. The fund has a slight tilt toward financials, with 26.8% share, while information technology, telecommunication services and consumer staples round off the next three spots. The fund has retreated 0.2% in the year-to-date frame (as of March 8, 2016), was up 6.2% in the last one month and it has a Zacks ETF Rank #3. High Quality – SPDR MSCI Emerging Markets Quality Mix ETF (NYSEARCA: QEMM ) High-quality ETFs are generally rich on value characteristics, as these focus on stocks having high-quality scores based on three fundamentals factors – the performance of value, low volatility and quality factor strategies. This fund follows the MSCI Emerging Markets Quality Mix Index, holding a large basket of 744 stocks. It has amassed about $97.3 million and charges a low fee of 30 bps per annum. The fund puts more weight in China, Taiwan and South Korea. The Zacks Rank #3 fund was up 7.7% in the last one month, but off 1.2% year to date, and it yields about 2.13% (as of March 8, 2016). Original Post

7 Year Bull Market? It May Only Be 6 Years And 2 Months After All

What do these 10 companies – Wal-Mart (NYSE: WMT ), Macy’s (NYSE: M ), Kohl’s (NYSE: KSS ), Sears (NASDAQ: SHLD ), Target (NYSE: TGT ), Best Buy (NYSE: BBY ), Office Depot (NASDAQ: ODP ), K-Mart, J.C Penney (NYSE: JCP ), Gap (NYSE: GPS ) – all have in common? Each one of them is closing down a slew of retail storefronts. The “talking heads” on CNBC want you to believe that brick-and-mortar woes are merely a reflection of the consumer’s preference to shop online. Maybe. Or perhaps shuttering the doors will help boost the bottom-line profitability of retail company shareholders. After all, the SPDR S&P Retail ETF (NYSEARCA: XRT ) has bounced an astonishing 17.5% off its bear market lows. On the other hand, a 24.5% bearish descent for the retail segment does not reflect positively on the well-being of American business. In fact, many influential sectors of the U.S. economy have already descended more than a bearish 20%. There have been peak-to-trough declines ranging from 20%-40% in energy, materials, transporters, biotechnology as well as financial institutions. The bear market rally in the Financial Select Sector SPDR ETF (NYSEARCA: XLF ) still leaves the influential sector in correction territory, roughly 12% beneath its July pinnacle. Perhaps ironically, the business media excitedly embraced the 7th birthday of the bull market yesterday (3/9/16). What was missing from the exuberance? The S&P 500 traded at 1989 back in July of 2014. That’s 20 months ago. More critically, 42% of S&P 500 components remain mired in bear market territory, even after the 10% bounce off of the February lows. And what if the S&P 500 should ultimately drop 20% prior to reclaiming its May 2015 record high of 2130? In that case, the bull market would have ended ten months ago at an age of six years, two months. Not surprisingly, the very same folks who believed the bear market was unstoppable at the February lows – S&P 500 at 1829 – shifted back to the bull camp the minute the S&P 500 closed above 2000. Did the fundamental backdrop on three consecutive quarters of declining earnings per share (EPS) change to justify the bullishness? Hardly. Hadn’t they ever seen how bear market rallies work? Where broad market gauges could jump 10%, 15%, even 18% in the middle of a bearish downtrend? Apparently not. In spite of the bullish refrain that you have to invest in stocks because there is no alternative (T.I.N.A.), investor preference for intermediate-term treasury bonds demonstrates otherwise. The Federal Reserve is raising its overnight lending rate; committee members express a desire for gradual stimulus removal. Yet that guidance has done little to dissuade the investment community from embracing low yielding investment grade debt – the kind of capital preservation one might get by selecting the iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ). The result? The yield curve continues to flatten. The spread between “10s” and “2s” has fallen to a meager 1%. In fact, you’d have to go back to the start of the Great Recession to witness a similar phenomenon. “But Gary,” there is not going to be a recession. “The Federal Reserve won’t make the mistake that it made in 2008 by waiting an entire calendar year before coming to the rescue with asset purchases via electronic money creation (a.k.a. QE).” How is that working out for Europe? This morning, Mario Draghi of the European Central Bank (ECB) hoped to kick-start its moribund regional economy by announcing a foray into deeper negative interest rate waters (-0.4%) and committing to $87 billion per month in asset purchases. Not only did global investors sell the news – not only did the SPDR EURO STOXX 50 ETF (NYSEARCA: FEZ ) give up nearly all of its 2% intra-day gains – but the European economy has yet to show genuine improvement from the stimulus policies of the ECB. Consequently, the bear market rallies in Europe have consistently registered “lower highs” and “lower lows.” Meanwhile, each of the respective BRIC nations (i.e., Brazil, Russia, India, China) are still suffering. There are cracks in Australia’s housing market. And the entire Canadian economy? It has been falling apart on numerous measures. The hope, then, is that the resilient U.S. consumer will buck the trend of global stagnation. Unfortunately, U.S. corporate profits cannot escape a worldwide demand strike , particularly when 50% of profits come from overseas operations. It seems the resilient U.S. consumer is being asked to carry a whole lot more weight on his/her shoulders than is feasible. With Markit’s U.S. Services PMI hitting a recessionary 49.8 in February – a data point that is at the lowest level in nearly two-and-a-half years – maybe the consumer is getting closer to “tapping out.” Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

4 Energy ETFs Outperforming On Oil Rebound

Energy investors have long been waiting for oil prices to soar and energy stocks and ETFs to join the party. Though the start of 2016 was not at all joyous for oil, the commodity finally bucked the trend as evident by the 17% one-month gain and an 11.3% five-day uptick in the WTI crude ETF, the United States Oil ETF (NYSEARCA: USO ) . The picture is equally rosy for Brent crude with the United States Brent Oil (NYSEARCA: BNO ) rising 11.1% in the last five days and adding 21.1% in the last one month. Brent crude is hovering around $40 while WTI crude is around $37 at the time of writing. Though the commodity was stressed lately by soft Chinese data , the underlying momentum remained strong. Several investors turned bullish on the product. Also, the number of rigs fell to the lowest level since December 2009 (as per Baker Hughes (NYSE: BHI )) pointing to a likely fall in U.S. output. The U.S. rig count slipped to below 500 for the week ending March 4. Of these, there were 392 active oil rigs and the rest were drilling natural gas. If this was not enough, the biggest oil producing countries – Saudi Arabia and Russia – along with Qatar and Venezuela had agreed to freeze oil output at the January level. Needless to say, the move brought a fresh lease of life in the energy sector. In short, efforts from both U.S. and OPEC to shore up the oil market signal that producers are now really serious about reining in the oil rout. As far as demand is concerned, China’s crude imports surged 19.1% between January and February despite a soft economy, per Reuters. Speculation is rife that oil can reach the $50 level by the end of this year. While buoyancy was noticed in the entire energy sector, below, we highlight four energy ETFs that cashed in the most on the recent rally. First Trust ISE-Revere Natural Gas Index ETF (NYSEARCA: FCG ) This product offers exposure to the U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas. It follows ISE-REVERE Natural Gas Index and holds 30 stocks in its basket that are well spread out across components. The product has amassed $186.9 million in its asset base while it sees solid volume of nearly 896,000 shares per day. It charges 60 bps in annual fees from investors. The fund added 27.8% in the last one month (as of March 7, 2016). It has a Zacks ETF Rank of 3 or ‘Hold’ with ‘High’ risk outlook. PowerShares S&P SmallCap Energy Portfolio ETF (NASDAQ: PSCE ) This fund provides exposure to 33 firms by tracking the S&P SmallCap 600 Capped Energy Index. The fund has garnered about $30.9 million in its asset base while it sees a moderate volume of around 21,000 shares a day. The product is largely concentrated on the top 10 firms that collectively make up for about 60% share of the basket. About 58% of its assets is allocated to energy, equipment and services while oil, gas and consumable fuels account for the remainder. The ETF charges a fee of 29 bps annually and added 25.3% in the last one month (as of March 7, 2016). The fund has a Zacks ETF Rank #5 (Strong Sell) with a ‘High’ risk outlook. SPDR S&P Oil & Gas Equipment & Services ETF (NYSEARCA: XES ) This fund provides equal weight exposure across 42 securities by tracking the S&P Oil & Gas Equipment & Services Select Industry Index. None of the firms account for more than 3.95% of total assets. The fund has amassed $189.1 million in its asset base. The ETF has an expense ratio of 0.35% and gained 26.9% in the last one month. XES has a Zacks ETF Rank #5 with a ‘High’ risk outlook. SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP ) This fund follows the S&P Oil & Gas Exploration & Production Select Industry Index, holding 63 stocks in its portfolio. It is well diversified across its holdings with none of the companies accounting for more than 2.96% of total assets. The ETF has been able to manage $2.01 billion in its asset base. It charges 35 bps in annual fees and expenses. The product gained 17.5% in the last one month and has a Zacks ETF Rank #4 (Sell) with a ‘High’ risk outlook. Original Post