Tag Archives: taiwan

4 Safe Ways To Invest In Emerging Market ETFs

Emerging market equities have witnessed horrendous trading lately ravaged by the economic turmoil in China – the world’s second-largest economy and the largest emerging economy too. Back-to-back blows from China including currency devaluation, lackluster manufacturing data and the failure of the government’s relentless efforts to contain the stock market slide sent shockwaves around the world with emerging markets being among the most vulnerable spots. This, along with the constant guesswork on the Fed’s lift-off issues, threatened investors about their holdings on this susceptible-but-relatively-high-growth region. Investors ruthlessly dumped emerging market equities in apprehension of an imminent slowdown and a cease in cheap dollar inflows (once the Fed hikes rates). If this was not enough, IMF recently slashed the global growth forecasts for 2015 and 2016, mainly addressing the slowdown in emerging markets hurt by slouching commodities. The health of emerging markets is worsening, with growth expected to slow in 2015 for the fifth straight year. The two pillars of BRIC region – Brazil and Russia – will likely slip into recession this year and in the next. A protracted commodity market rout eclipsed the growth prospect of these two commodity-rich economies. Other key markets were also not out of the woods. Capital inflows to emerging markets are likely to turn negative this year for the first time since 1988. The fund outflows ($12.4 billion) in Q3 were the highest since the first quarter of 2014 when the emerging market funds bled $12.7 billion in assets. In September, emerging market ETFs witnessed $1.9 billion of extraction. Though bond funds were also unsteady, equities were hit hard. Though the scenario soothed a lot after a somber U.S. job report for September and China was able to put up some decent factory data for the month, things are yet to go a long way. A lot needs to be seen before investors’ confidence over this troubled-but-important zone is restored. A compelling valuation after a bloodbath may shower gains on emerging market equities ETFs lately, but we are unsure of how long this optimism will continue. As per Bloomberg , Fortress Investment Group LLC indicated that emerging markets are approaching a bear market of a scale seen 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. Several other hedge funds like Forum Asset Management and Ray Dalio’s Bridgewater Associates have also pointed to the lingering pain. According to the Institute of International Finance, investors will haul out about $540 billion from developing countries this year. While all are not outright bearish on this region as many see lucrative opportunities following a sell-off, it is wise to practice a defensive approach while playing this over-sensitive arena. Dollar-Denominated Bond – iShares JP Morgan USD Emerging Markets Bond ETF (NYSEARCA: EMB ) A low-rate environment especially after the weak labor market data which now points to a delayed Fed rate hike (probably early next year) perked up the appeal for high-yield instruments. Emerging market bond ETFs are known for smart yields. However, to cash in on this prospect, investors need to go for a dollar-denominated bond ETF. Since dollar has been range-bound lately, local-currency emerging market bond ETFs performed well of late. But this trend is not likely to linger. After all, the U.S. is the lone star in the developed market pack and the Fed will enact a rate hike sooner or later. And when it happens, local currencies bond ETFs will fail. Keeping these factors in mind, we suggest EMB as a good pick. The fund manages an asset base of over $4.4 billion, while charging investors 40 basis points as fees. The fund holds 294 U.S. dollar-denominated government bonds issued by 28 emerging market countries. The fund has lost 1.5% so far this year when the largest emerging market equities ETF VWO is down over 10%. The fund has a 30-Day SEC yield of 5.33% (as of October 7, 2015). High Yield – Emerging Markets Equity Income Fund (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 $1.6 billion-ETF holds about 300 stocks. Though the fund is heavy on trouble zones like China, Russia and Brazil, and might see a sell-off ahead, an annual yield of 5.31% would provide some protection against capital erosion. The fund has a Zacks ETF Rank #3 (Hold) and is down 13.2% this year. Low Volatility – iShares MSCI Emerging Markets Minimum Volatility ETF (NYSEARCA: EEMV ) A low volatile portfolio is yet another key to long-term success. For investors seeking exposure to the emerging markets, EEMV could be an intriguing pick. The $2.6 billion-ETF charges 25 bps in fees. In total, the fund holds over 250 stocks in its basket with each accounting for less than 1.61% share. The fund has a slight tilt toward financials with 28.7% share, while consumer staples, telecommunication services and information technology round off the next three spots. The fund has retreated 6.2% in the year-to-date frame (as of October 8, 2015) and 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 729 stocks. It has amassed about $79 million and charges a low fee of 30 bps per annum. The fund puts more weight in China, South Korea, Taiwan and India. The Zacks Rank #3 fund is off 7.4% year to date and yields about 2.68% (as of October 8, 2015). Original Post

Oil Refiner ETF CRAK: A Better Buy Amid Weak Energy

Thanks to an ever-increasing production, a large supply glut and sluggish demand, oil price skidded to half over the past one year, making the commodity the worst nightmare. In fact, trading in oil became wilder last month after China devalued its currency and weaker economic data raised worries over the health of the world’s second largest economy, suggesting lower demand for crude. Currently, U.S. crude is hovering around $45 per barrel while Brent crude is trading above $48 per barrel. Market participants are bearish on oil prices for at least the short term as global developments are expected to add to the supply glut. This is because the U.S. is still producing oil at near record levels, the Organization of Petroleum Exporting Countries (OPEC) is pumping out maximum oil in more than three years, Iran is looking to boost its production once the Tehran sanctions are lifted and inventories continue being built up. On the other hand, demand seems muted at present given the persistent slowdown in China as well as sluggishness in Europe, Japan and other key emerging markets. The International Energy Agency (IEA) in its recent monthly report stated that the global oil market would remain oversupplied throughout 2016 though lower oil prices and a strengthening economy will boost oil demand at the fastest pace in five years. Oil Refining Thriving Amid Oil Prices Given the unfavorable fundamentals and a bleak oil outlook, almost every corner of the energy segment is suffering except oil refining, which is negatively correlated with the price of oil. This is because the players in this industry use oil as an input for processing refined petroleum products like gasoline. Hence, lower oil prices are boosting margins for refiners, leading to healthy stock prices. This trend is likely to continue if crude prices (input costs) remains lower or continue to fall further, leading to higher spreads. Spread is the difference in price between a barrel of oil and a barrel of refined product like gasoline, diesel, or jet fuel. As a result, the higher the spread, the more the profits will be for the oil refiners. That being said, as long as the spread remains stable at the current levels, refiners are expected to outperform the rest of the energy sector. Further, continued outperformance in the oil refining and marketing industry is well justified by its solid Industry Rank in the top 15% . Investors could tap the rising opportunity in this niche segment with the new Market Vectors Oil Refiners ETF (Pending: CRAK ) recently launched by Market Vectors. It is a one-stop shop for investors to play the oil refining market. CRAK in Focus CRAK looks to follow the Market Vectors Global Oil Refiners Index. The benchmark measures the performance of the largest and most liquid companies in the global oil refining segment. Companies eligible for inclusion in the index should generate at least 50% of their revenues from crude oil refining including gasoline, diesel, jet fuel, fuel oil, naphtha, and other petrochemicals, or have at least half of their assets devoted to the refining of crude oil. The product is getting the first-mover advantage as it has accumulated $1.8 million in its asset base within three weeks of its inception. It currently trades in a lower volume of about 14,000 shares a day on average. Any Downside Risk? The fund is heavily concentrated on the top 10 firms with huge allocations to Phillips 66 (NYSE: PSX ) , Marathon Petroleum (NYSE: MPC ) and Valero Energy (NYSE: VLO ) that collectively make up for one-fourth of the portfolio. This increases company-specific risk and suggests that the top firms dominate the fund’s returns. While VLO was recently upgraded to a Zacks Rank #2 (Buy), PSX and MPC were downgraded to a Zacks Rank #3 (Hold) each. Further, the fund is not a pure American play and is hence exposed to currency risk. More than half the portfolio offers international exposure, namely Japan, India, South Korea, Poland, Taiwan, Portugal, Finland, Turkey, Australia, Thailand and Greece. Investors should note that it is a relatively high cost choice in the energy space. It charges a bit higher fee of 59 bps compared with the expense ratio of 0.15% for the broad sector fund – Energy Select Sector SPDR (NYSEARCA: XLE ) . Bottom Line Given the encouraging outlook for the oil refiners, CRAK could prove to be the lone star in the energy space in a plunging oil price environment. Original Post

Best And Worst August ETFs

August was the cruelest month for the U.S. stock market with volatility levels peaking and China roiling the markets. The worries intensified when China unexpectedly devalued its currency on August 11, triggering off a brutal sell-off across the globe and deepening fears of global growth. The slide in the stocks continued following the weak Chinese factory activity data and the dovish Fed minutes. All these market gyrations raised questions on the six-year bull market and pushed the major bourses into the correction territory, pushing them 10% down from their recent heights. However, the latest slew of better-than-expected economic data, fresh China stimulus, and bargain hunting helped stocks to recover from the correction territory. Still, the uncertainty over the interest rates hike is looming large as one of the Fed officials hinted at an unlikely September rise in interest rates while another sees the hike in the cards. Notably, Dow Jones tumbled 6.6% in August, indicating the largest monthly loss since May 2010 while the S&P 500 and Nasdaq Composite Index dropped 6.3% and 6.9%, respectively, representing the biggest monthly loss since May 2012. Added to the woes are weakness in the emerging markets and the slump in commodities. Though oil prices continued their plunge in the month leading to a further slump in the broad commodities, most of the losses were erased in the final two days of last week. Notably, U.S. oil surged 17% in just two days, representing the biggest two-day rally in six years. On the other hand, the risk-off sentiments led to a flight-to-safety among investors, giving a boost to Treasuries and gold. That being said, we have highlighted the two best and worst ETF performers of last month. Best ETFs C-Tracks on Citi Volatility Index ETN (CVOL ) – Up 91.1% Volatility products gained the most in August, as these tend to outperform when markets are falling or fear levels over the future are high, both of which are happening lately. As such, CVOL linked to the Citi Volatility Index Total Return, jumped about 91% last month. The note provides investors with direct exposure to the implied volatility of large-cap U.S. stocks. The benchmark combines a daily rolling long exposure to the third and fourth month futures contracts on the VIX with short exposure to the S&P 500 Total Return Index. The product has amassed $5.7 million in its asset base while charging 1.15% in annual fees from investors. The note trades in good volume of more than 103,000 shares per day. Sprott Junior Gold Miners ETF (NYSEARCA: SGDJ ) – Up 5.9% Though the rising interest rates concern has dulled the appeal for gold over the past several months, the uncertainty in the timing of the rates hike and global concerns are compelling investors to turn their focus on gold as a store of value. Acting as leveraged plays, gold miners tend to experience more gains than the gold bullion. SGDJ targets the small cap segment of the gold mining industry by tracking the Sprott Zacks Junior Gold Miners Index. The benchmark utilizes the factor-based methodology that seeks to emphasize companies with the strongest relative revenue growth and price momentum. In total, the fund holds a small basket of 33 stocks with the highest allocation to the top firm – Centerra Gold (NASDAQ: CG ) – at 8.8%. Other firms hold less than 5.8% of assets. In terms of country exposure, Canada takes the largest share at 74% while the U.S. receives just 13% of SGDJ. The fund has accumulated $20.1 million in AUM since its debut in March and sees a paltry volume of about 17,000 shares. Expense ratio came in higher at 0.57%. The fund gained nearly 6% in August. Worst ETFs Market Vectors ChinaAMC SME-ChiNext ETF (NYSEARCA: CNXT ) – Down 23.9% Though the Chinese contagion spread globally, A-shares ETFs were the worst hit by the rout. As a result, CNXT, which had a torrid run in the first half of 2015, plunged 23.9% in August. This fund offers exposure to the largest and most-liquid China A-share stocks listed and trading on the Small and Medium Enterprise (SME) Board and the ChiNext Board of the Shenzhen Stock Exchange by tracking the SME-ChiNext 100 index. It holds 102 stocks in its basket with none accounting for more than 4.30% share. About one-third of the portfolio is allotted to information technology, while industrials, consumer discretionary and health care round off the next three spots with double-digit exposure each. The product is unpopular and illiquid with AUM of $33 million and average daily volume of more than 141,000 shares. It charges 66 bps in fees per year. Market Vectors Solar Energy ETF (NYSEARCA: KWT ) – Down 20.4% The solar industry is entangled in vicious oil trading given investors’ misconception that oil price and solar market fundamentals are directly related with each other. Given this, KWT tumbled over 20% last month. The fund manages $17.7 million in its asset base and provides global exposure to 33 solar stocks by tracking the Market Vectors Global Solar Energy Index. It is somewhat concentrated on the top 10 holdings with 57.3% of assets. In terms of country exposure, the U.S. and China account for the top two countries with 37.4% and 30.8% allocation, respectively, closely followed by Taiwan (15.5%). The product has an expense ratio of 0.65% and sees paltry volume of about 2,000 shares a day. Link to the original article on Zacks.com