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Bridgewater Slashes EM ETF Exposure, Should You?

Emerging market (EM) weakness has been lately a pain in the neck for global investing, forcing several research houses to cut their global growth forecasts more than once this year. Needless to say, the investing spectrum piled up huge losses with the MSCI Emerging Market Index shedding 19% in Q3 – the largest quarterly retreat in four years – instigated by the Chinese market upheaval, per Bloomberg. Thanks to these sentiments, the world’s largest hedge fund, Bridgewater Associates, slashed 41% of its holdings in two EM ETFs – the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) and the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) – in the third quarter. This step was quite shocking since Bridgewater had been consistent in raising its investments in EM assets in recent years. Let’s detail why and how you could also take cues from Bridgewater and stay profitable. The streak of losses in the EM space started long back on a host of factors. First and the foremost was the possibility of a policy tightening in the U.S. So long, EM equities shone on huge foreign direct investment as investors targeted emerging market stocks and ETFs in search of higher yields. As a result, Fed tightening talks ravaged the emerging market asset classes spurred by fears over the cease in cheap dollar inflows. In 2013, the EM equities were slaughtered in apprehension of a QE taper in the U.S. Though the repetition of the same episode is less likely this year if the Fed enacts a lift-off in December, the investing backdrop is anything but upbeat. Yes, this time around emerging markets are more resilient and will not crush under the dollar strength like they did in 2013. But the commodity market crash, on the dual dose of greenback strength and demand-supply imbalances, would definitely add shockers to EM investing. Notably, many emerging markets are rich in commodities. This was truer given the oil price crash for over more than the last one-year period, which has wrecked havoc on oil-oriented emerging economies like Russia and Columbia. This also dealt a blow to the emerging market currencies. Upheaval in the Chinese economy and the stock market crushed the global market in August and it is still not out of woods. This episode sent shockwaves to other emerging markets, raising questions on the economic health of the entire EM bloc. EM growth is also expected to slow in 2015 for the fifth straight year. The two pillars of the BRIC region – Brazil and Russia – will likely slip into recession this year and are likely to face the downtrend next year too. IMF expects the Russian economy to contract 3.8% this year and 0.6% the next, while Brazil’s economy is expected to shrink by 3% in 2015 and 1% in 2016. China is also likely to score the most awful growth numbers in more than two decades this year. Another pillar of the BRIC bloc, India, has a decent growth profile. But a slower application of reformative measures and the loss of Prime Minister Narendra Modi’s party in the state election in Bihar, which was viewed as the Indian population’s perception of Modi’s pro-growth policies, stirred confusion over India investing too. Not only Bridgewater, several hedge funds are outright bearish on emerging markets. As per Bloomberg , Fortress Investment Group LLC indicated that emerging markets are approaching a bear market of a scale seen last during the Asian financial crisis of 1997. Credit crunch in these regions will continue till March 2017 going by the past economic cycles, according to Fortress. Forum Asset Management also pointed to a lingering pain. According to the Institute of International Finance, investors will haul out about $540 billion from the developing countries this year. Thus, investors finding this investing arena highly fragile might go short on emerging market ETFs and earn smart returns. Below, we highlight three inverse EM ETFs which could be used to tack on gains. Direxion Daily Emerging Markets Bear 3X Shares ETF (NYSEARCA: EDZ ) The fund offers three times inverse leveraged exposure to the MSCI Emerging Markets Index. The index includes 21 emerging market countries, namely Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey. The fund has amassed about $134.5 million in assets so far and charges 95 bps in fees. EDZ was up about 12.4% in the last one month (as of November 16, 2015). ProShares UltraShort MSCI Emerging Markets ETF (NYSEARCA: EEV ) The fund offers two times inverse leveraged exposure to the same index that EDZ follows. It has about $74.6 million in assets and charges 95 bps in fees. EEV was up 8.7% in the last one month. ProShares Short MSCI Emerging Markets ETF (NYSEARCA: EUM ) This fund delivers exactly the inverse exposure to the MSCI Emerging Markets Index. The fund has amassed about $419.2 million in assets and charges 95 bps in fees. EUM added over 4.3% in the last one month. Original Post

DEM: Emerging Market Equities With A 4.98% Yield Are Worthy Of A Closer Look

Summary The individual company allocations won’t be familiar, but the sector allocations and country allocations can be analyzed well. The expense ratio is simply too high for my taste. The sector allocation looks fairly aggressive, but I do like the idea of getting telecommunications exposure through an emerging market ETF rather than emphasizing it in domestic equity. Allocations to Brazil and South Africa are offering investors the opportunity to incorporate exposure to South America and Africa into their portfolio. The WisdomTree Emerging Markets Equity Income ETF (NYSEARCA: DEM ) offers great yields and appealing allocations to underrepresented countries and continents. The expense ratio is a pain, but the yield looks fairly nice. Expenses The expense ratio is .63%. This is certainly too high for my taste, and that is unfortunate, because there are some really nice things about this ETF. Dividend Yield The yield is currently running at 4.98%. For an income investor, this sounds like a beautiful way to get some of the emerging market exposure. Holdings I put grabbed the following chart to demonstrate the weight of the fund’s top 10 holdings: (click to enlarge) When looking at the emerging market company allocations, I don’t expect to be very familiar with the companies. Rather than focus heavily on the individual companies, I prefer to look into the sector breakdown and country allocations for the ETFs. Sectors (click to enlarge) The sector allocation here is fairly interesting. It feels like when I’m researching WisdomTree ETFs, I’ve simply come to expect high allocations to the financial sector. I’m not thrilled seeing it, but the positions are establishing a very significant amount of income for investors in this sector, and the weak income on equity investments in foreign markets can be a disincentive for retirees to grab enough foreign equity to optimize their portfolio for risk-adjusted returns. The thing I do like seeing here is the heavy allocation to the energy sector and telecommunications services. I’ve been bearish on domestic telecommunications because the market has become so competitive relative to previous years, but it is still developing in many countries. I like the idea of getting telecommunications exposure and emerging markets exposure at the same time, so that allocation is great. Investors should take note that this fund is fairly low on consumer staples and utilities, which tend to be more resilient to market weakness, so there is the potential of some fairly substantial price movements. If an investor is going to run with this kind of aggressive high yield portfolio, they should be ready to rebalance and raise allocations if the shares are falling as part of a bear market. Country The country allocations are another major area of importance for establishing proper diversification. (click to enlarge) I have to admit, this is a fairly interesting allocation. I’d be a bit concerned that the top countries receive such a heavy allocation, which would make me favor combining this ETF with another one or two to round out the international exposure. In those ETFs, I’d be looking for lower weights on the top three countries here to enhance the diversification. The nice thing is that I’m seeing substantial allocations to South Africa and Brazil, which provides this ETF with exposure to continents that are often marginalized or excluded from international ETFs. South America and Africa are the most common continents for being mysteriously left off of international funds, so I find this allocation fairly attractive for diversification. Conclusion The yield on this ETF is great, but the expense ratio is not. Since the companies represent emerging markets, they will generally be unknown to domestic investors, but the sector allocation and country allocation give us some perspective on how the ETF should be performing. The sector allocations feel fairly aggressive, and investors using this fund may want to control for that by being prepared to rebalance if the share prices take a hard hit. The country allocations are the high point of the portfolio. The countries represented in this portfolio, and the continents they are on, are often excluded or marginalized in other international funds. For this high yield, if the expense ratio was dropped down and the sector allocation was modified to be slightly more defensive, this fund would be very interesting. I should point out that the total returns on the fund left a great deal to be desired over the funds history, but the last 8 years have shown dramatically superior domestic performance than international performance, so investors should take the weak past performance with at least a few grains of salt.

Will Gold Miner ETFs Turn Around In Q4?

The September U.S. jobs data released on Friday signaled a sudden halt in the pace of job growth and has dented the chance of an interest rate hike later this month, which could have been the first in nearly a decade. While this ushered gains on several asset classes, gold mining was among the huge beneficiaries. The metal lost its allure long back, thanks to an increased prospect of an interest rates hike this year, a strengthening dollar, muted inflation across the most developed nations and slowdown in key consuming countries like China. Occasional geopolitical flare-ups and even a risk-off trade sentiment could not save this safe-haven yellow metal. As a result, the biggest gold ETF – the SPDR Gold Trust ETF (NYSEARCA: GLD ) – is off 4% this year. The decline was more pronounced in the gold mining ETF space, which trades as a leveraged play of the underlying metal. The largest gold mining ETF – the Market Vectors Gold Miners ETF (NYSEARCA: GDX ) – is down over 21% this year. However, things appear to be stabilizing at the start of Q4 (read: ETF Winners & Losers Post Dovish Fed Meet ). What Gives Gold Miners a Bounce to Start Q4? The below-par jobs report has raised questions over the health of the U.S. economy and the fate of the looming Fed policy tightening. Headline job gains for September came in at 142K versus estimates of 200K and the prior month’s tally of 136K. The originally reported tally for July was also revised lower to 223K from 245K originally. The year-to-date monthly pace of job gains now averages at 198K, though the pace for the last three months is much lower at 167K. This compares to the monthly average of 260K for 2014. In any case, subdued inflation and a faltering global backdrop were always the deterrents to the looming Fed action. Only solid job numbers kept the likelihood of a sooner-than-expected Fed rate hike alive. So, the latest bit of employment information did magic for the gold and the related ETFs, and the demand for the metal seems to have returned with the start of the fourth quarter on a weakening dollar. On Friday, dollar ETF – the PowerShares DB USD Bull ETF (NYSEARCA: UUP ) – lost about 0.24% while GLD and GDX were up over 2.1% and 8.1%, respectively. Gold miners delivered two successive years of losses in 2013 (down 50%) and 2014 (down 16%) and are on their way to imitate the prior performances this year too. It goes without saying that such huge sell-offs have made the metal’s valuation so cheap that any single driver would easily take it to new heights. Moreover, an unsteady global macroeconomic backdrop will likely keep the market rocky throughout Q4 and brighten the appeal for safe investments. Since gold serves this purpose efficiently, Q4 can essay a turnaround story for gold this year (read: Short-Term Respite for Gold ETFs? ). Time to Buy Gold Miners ETFs? Despite the great start to the quarter, the fundamentals are still not strong. Investors should note that this job data induced leap is likely to be short-lived. Sooner or later, the Fed will start tightening policies. Basically, gold miner ETFs are presently sitting on the fence with possibilities and perils on each side. The bullish trend for gold mining ETFs could continue in the weeks ahead if more choppy economic data comes in, the rate hike possibility keeps getting delayed, or some political issue creeps in. Thus, investors who go by the belief that “the trend is your friend” might take a look at these gold mining ETFs to make some quick bucks. GDX in Focus This is the most popular and actively traded gold miner ETF with an AUM of $4.7 billion and average daily volume of around 65 million shares. The fund follows the NYSE Arca Gold Miners Index, holding 36 stocks in its basket. Canadian firms account for 55.1% of the assets, followed by the U.S. (13.2%) and South Africa (10.4%). The fund charges 53 bps in annual fees and returned over 8% on October 2 (see: all the Material ETFs here ). Sprott Gold Miners ETF (NYSEARCA: SGDM ) This fund follows the Sprott Zacks Gold Miners Index, holding over 25 stocks in its basket. The product is skewed toward mid caps at 56% while the rest goes to small caps. The fund has amassed $108.3 million in its asset base and trades in a good volume of over 90,000 shares a day. It charges 57 bps in annual fees from investors. SGDM added about 8.2% on October 2. iShares MSCI Global Gold Miners ETF (NYSEARCA: RING ) This fund is the cheapest choice in the gold mining space, charging just 0.39% in fees and expenses. The fund has been able to manage assets worth $44 million while it trades in moderate volume of 105,000 shares. The ETF follows the MSCI ACWI Select Gold Miners Investable Market Index and holds 29 securities in its portfolio. Country holdings are also similar, with Canada as the top country, followed by South Africa and the U.S. The fund was up over 7.4% On October 2. Original post