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Mutual Funds To Buy Amid Global Jitters

Global growth fears have been prominent in recent times. Dismal economic data out of China had sparked jitters in the global markets. Also, disappointing factory data in the Eurozone recently, dampened investor sentiment. The record exports data from Germany was a bright spot, but that is not enough to dispel the global growth fears. In fact China, the second largest economy, poses a big threat as acknowledged by the IMF. They believe China’s slowdown may have graver repercussions on other countries than what was forecasted. The U.S. markets were not immune to the global market rout, but economic data looks convincing enough to suggest that the U.S. is relatively better positioned. Latest data showed that the U.S. economy has recovered significantly from the sluggish growth conditions in the first quarter. In this situation, mutual funds that mostly hold companies with a domestic focus are likely to gain from improving fundamentals. China, Europe Jitters China The China Federation of Logistics and Purchasing reported that the official manufacturing PMI index declined to a three-year low in August to 49.7 from July’s reading of 50. Meanwhile, the final Caixin Manufacturing Purchasing Managers’ index fell from 47.8 in July to 47.3 in August, reaching its lowest level in the last 77 months. The reading below 50 signaled that manufacturing activity contracted in August. Moreover, a plunge of 8.3% in exports and a decline of 8.1% in imports in July indicated the world’s second biggest economy is suffering from both weak global and domestic demand. It was also reported that producer prices declined to the lowest level in six years in July. Yesterday, data from China proved to be dismal once more. Fears of China-led global slowdown intensified after the National Bureau of Statistics in China showed China’s fixed-asset investment growth slowed to 10.9% in the first eight months of 2015. This is the weakest in about 15 years. Alongside, factory output increased 6.1% in August from prior year period. This missed the market expectations of a 6.4% gain. China stocks dropped the most it had in three weeks and also dampened sentiment in the U.S. markets. These disappointing data raised concerns that China may fail to achieve the target of 7% GDP growth rate this year Europe Investors are also worried about the economic condition of Europe. The final reading of Markit’s manufacturing PMI came in at 52.3 in August, below July’s reading of 52.4. Though the reading of the index reached a 16-month high in Germany, the reading out of France and Italy declined to the lowest level in the last four months. Meanwhile, the Markit/Cips U.K. manufacturing PMI declined from 51.9 in July to 51.5 in August, indicating a slowdown in manufacturing activity in the U.K. Meanwhile, it was also reported that the Euro zone’s inflation rate was at only 0.2% in August, significantly below the targeted rate of 2%. Last month, Eurosat reported that the common currency bloc expanded at a rate of only 0.3% in the second quarter, down from the first quarter’s growth rate of 0.4%. Last week, the Bank of England (BOE) decided to keep the key interest rate unchanged. The committee members voted 8-1 in favor of keeping the interest rate flat at 0.5%. It acknowledged that the China developments has increased downside risk to the global economy, but didn’t see any effect on the U.K. economy yet. The U.K. Office for National Statistics recently reported that manufacturing production declined at an adjusted rate of 0.8% in July, compared to a rise of 0.2% in the previous month. Most of the manufacturing sub-sectors witnessed a decline in production during July. The bright spot from Europe has been the Germany exports data. According to Germany’s Federal Statistics Office, exports gained a seasonally adjusted 2.4% from the prior month to 103.4 billion euros ($115.35 billion) in July. Imports were up 2.2% to 80.6 billion euros. These are the highest values since records started in 1991. Both exports and imports comprehensively beat expectations of gains of 0.7% and 0.5% respectively. On a seasonally adjusted basis, foreign trade balance showed a surplus of 22.8 billion euros. U.S. Shows Strength Amid the global concerns, the U.S. has done relatively well. Right now, uncertainty prevails over the rate hike decision. It is not clear if the FED will raise rates during the two-day policy meeting that begins tomorrow. However, the economic indicators are fairly encouraging. Despite global growth coming to a grinding halt, the “second estimate” released by the U.S. Department of Commerce last month showed that the GDP in the second quarter advanced at a pace of 3.7%, significantly higher than the first quarter’s rise of only 0.6%. The report also showed that gross domestic purchases surged at a rate of 3.4% during the quarter compared to a gain of 2.5% in the first indicating an increase in domestic demand. Also, the personal consumption expenditure (PCE) price index gained 1.5% during the quarter, a turnaround from the first quarter’s 1.9% decline. Though August jobs data came lower than expected, June and July’s job additions were revised higher. Analysts note that August’s job numbers have been revised higher later due to seasonal factors. Separately, the unemployment rate fell to 5.1% in August, its lowest level since Apr 2008. The unemployment rate was also lower than the consensus estimate of 5.2%. The unemployment rate was within the Fed’s goal of full employment. 3 Domestic Funds to Buy Funds that have limited international exposure should be more shielded from global growth concerns. Meanwhile, these domestically focused funds are poised to benefit from the favorable economic environment in the U.S. Thus, we present 3 funds that hardly have foreign stock holdings. The following funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy). We expect the funds to outperform its peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund. The funds have encouraging year-to-date, 1-year and 3 and 5-year annualized returns. The minimum initial investment is within $5000. The Oppenheimer Discovery Fund A (MUTF: OPOCX ) primarily focuses on acquiring common stocks of domestic companies having impressive growth potential. OPOCX invests in securities of small cap companies having market capitalizations below $3 billion. As of the last filing, OPOCX, a Small Growth fund, allocates their fund in two major groups; Small Growth and Large Growth. OPOCX currently carries a Zacks Mutual Fund Rank #1. The fund has gained 6.7% and 9.6% in the year-to-date and 1-year periods. The 3 and 5 year annualized returns are 14% and 17.7%. Expense ratio of 1.12% is lower than the category average of 1.33%. The Neuberger Berman Mid Cap Growth Fund A (MUTF: NMGAX ) invests a large chunk of its assets in companies having market cap size identical to those included in the Russell Midcap Index. NMGAX maintains a diversified portfolio by investing in common stocks of companies across a wide range of sectors and industries. NMGAX may focus on specific sectors that are expected to gain from market or economic trends. NMGAX, as of the last filing, allocates their fund in three major groups; Small Growth, Large Growth and Large Value. NMGAX currently carries a Zacks Mutual Fund Rank #1. The fund has gained 7.1% and 11.1% in the year-to-date and 1-year periods. The 3 and 5 year annualized returns are 14.8% and 15.5%. Expense ratio of 1.11% is lower than the category average of 1.29%. The Diamond Hill Select Fund A (MUTF: DHTAX ) seeks to provide capital growth over the long term. DHTAX invests in 30-40 U.S. equities which the Adviser believes are undervalued. These equity securities may be of any size. The adviser estimates a company’s value devoid of its market price and also takes into effect the industry competition, regulatory factors and various industry factors among others. As of the last filing, DHTAX, a Large Value fund, allocates their fund in three major groups; Large Value, Large Growth and High Yield Bond. DHTAX currently carries a Zacks Mutual Fund Rank #1. The fund has gained 2.9% and 7.5% in the year-to-date and 1-year periods. The 3 and 5 year annualized returns are 18.8% and 15.2%. Expense ratio of 1.20% is however higher than the category average of 1.11%. Link to the original post on Zacks.com

ETFs To Watch On Increasing Consumer Credit

The Federal Reserve reported on Tuesday that consumer credit increased in July, an indication of rising consumer confidence in a favorable economic environment. It was reported that the volume of consumer credit rose by $19.1 billion or at an annual rate of 6.7% in July, outpacing the consensus estimate of $18 billion. This was preceded by a gain of $27 billion in June. Moreover, with July’s increase, consumer credit finished in the positive territory every month for nearly four years. According to the report, revolving credit in July increased at an annual pace of 5.7% after surging 10% in June. Non-revolving credit, which includes auto and student loans, also witnessed a gain of 7%, preceded by June’s rise of 9.4%. This encouraging report indicated that consumers who play an important role in boosting the U.S. economy are gradually gaining confidence on the back of a recovering economy, low oil prices and a steady labor market. Consumers Boosting Economy The rise in consumer spending has helped the U.S. economy to rebound strongly in the second quarter after witnessing sluggish first-quarter growth. The “second estimate” released by the U.S. Department of Commerce showed that the GDP in the second quarter advanced at a pace of 3.7%, compared to the first quarter’s rise of only 0.6%. According to the report, consumer spending, which contributes more than 75% to economic activity, rose 3.1% during the second quarter, outpacing the first quarter’s growth rate of 1.8%. It contributed more than 2.1% to the second-quarter GDP, the highest by any segment. Meanwhile, the consumer credit report indicated that auto loans – a key component in the non-revolving credit segment – played an important part in boosting debt volume in this section. This is evident from the encouraging auto sales report released recently. In August, automakers witnessed the highest rate of increase in light vehicle sales in the U.S. in 10 years. Along with factors such as low oil prices, a recovering economy and an improving labor market condition, easy availability of credit with lower interest rates and longer repayment periods also helped consumers to spend more in the auto sector. Factors Lifting Consumer Sentiment A steady job market had no little impact in the recent boost to consumer sentiment. Though the U.S. job numbers in August grew at the most sluggish pace in five months, the unemployment rate dropped to 5.1% from 5.2%, the lowest since April 2008. Moreover, the job report showed that average hourly wages rose 0.3% sequentially and 2.2% year over year. Meanwhile, the slump in oil prices is another important factor that enabled U.S. consumers to spend more over the past few months. Oil price skidded to half over the past one year amid increasing production, a large supply glut and sluggish demand. The situation is hardly expected to improve in the near future, as there is little hope of a reduction in oil supply. While the U.S. and Organization of Petroleum Exporting Countries (OPEC) are still producing oil at multi-year highs, Iran is looking to boost its production once the Tehran sanctions are lifted. ETFs to Consider ETFs exposed to sectors that attract a major part of consumer spending are poised to gain from this bullish consumer credit report. As mentioned above, the auto sector was one to receive a significant part of consumer credit in July. In this situation, investors may consider the auto ETF – the First Trust NASDAQ Global Auto ETF (NASDAQ: CARZ ) – in order to tap the positive trend. CARZ holds a Zacks ETF Rank #2 (Buy) and gained nearly 3.9% yesterday and around 3.4% over the past one week. Separately, another sector that receives a notable share of consumer spending is consumer discretionary. Positive consumer credit data also had a positive impact on ETFs that are exposed to this sector. Among them, the Consumer Discretionary Select Sector SPDR ETF (NYSEARCA: XLY ), the SPDR S&P Retail ETF (NYSEARCA: XRT ) and the iShares U.S. Consumer Services ETF (NYSEARCA: IYC ) gained 2.3%, 2% and 2.3% yesterday, respectively. The ETFs mentioned above hold either a Zacks ETF Rank #1 (Strong Buy) or a Zacks ETF Rank #2 (Buy) and may thus be on the radar of investors looking to gain from the favorable scenario. Original Post

4 Ways To Hedge Volatility With ETFs

Volatility levels have picked up lately though chances of a turnaround are little, at least in the near term. This is especially true as a faltering Chinese economy rattled the global markets in recent weeks and intensified fears of global repercussions. Plunging oil price, which is yet again threatening global growth and deflationary pressure, and slowdown in key emerging markets have added to the woes. All these factors might dim the chances of the Fed’s September lift-off and delay the rates hike to later this year or early next year. On the other hand, a series of upbeat data on the domestic front is supporting the prospect of a rates hike. The second estimate of Q2 GDP data came in much higher than the initial estimate, the housing market is improving, consumer confidence is rising, and the unemployment rate dropped to a seven-and-half year low. All these signaled that the U.S. economy is doing quite well on several aspects. In such a backdrop where international fundamentals are weak but domestic economy is on a firmer footing, investors may want to stay allocated to the U.S. markets and might take advantage of the beaten down prices. However, rising volatility might put their returns at risk. In order to exploit the current trend, investors should apply some hedge techniques to the equity portfolio. While there are number of ways to do this, we have highlighted four volatility-hedged ETFs that could prove beneficial amid market turbulence. Investors should note that these funds have the potential to stand out and might outperform the simple vanilla funds in case of rising volatility. How to Play PowerShares S&P 500 Downside Hedged Portfolio (NYSEARCA: PHDG ) This actively managed fund seeks to deliver positive returns in rising or falling markets that are uncorrelated to broad equity or fixed-income market returns. It tries to follow the S&P 500 Dynamic VEQTOR Index, which provides broad equity market exposure with an implied volatility hedge by dynamically allocating between different asset classes: equity, volatility and cash. The S&P 500 Total Return represents the equity component while the S&P 500 VIX Short-Term Futures Index represents the volatility component of the index. The non-equity (volatility + cash) portion makes up for one-fourth of the portfolio, while the rest goes to equity. In terms of equity holdings, the fund is widely diversified across sectors and securities. None of the firms holds more than 2.72% share while technology, health care, financials, consumer discretionary and industrials occupy the top five spots with a nice mix in the portfolio. The fund has accumulated $462.5 million in its asset base and trades in a moderate volume of around 179,000 shares per day. It charges 40 bps in fees per year from investors and was down 1.8% in the trailing one-month period. Barclays ETN+ S&P VEQTOR ETN (NYSEARCA: VQT ) This is an ETN option tracking the S&P 500 Dynamic VEQTOR Index. VQT uses volatility futures contracts directly to hedge volatility. It increases allocation to the equity component as measured by the S&P 500 Total return index, in times of low volatility. On the other hand, it increases volatility exposure as measured by the S&P 500 VIX Futures Total Return index and allocates entirely into cash if the index slumps 2% or more in the preceding 5 days. In this manner, the note manages to keep a check on volatility. The product has amassed $434.7 million in AUM while sees light volume of nearly 28,000 shares per day on average. It is a bit pricey, charging 95 bps in annual fees. The ETN lost 1.7% over the past one month. Janus Velocity Volatility Hedged Large Cap ETF (NYSEARCA: SPXH ) This ETF tracks the VelocityShares Volatility Hedged Large Cap Index and looks to hedge “volatility risk” in the S&P 500, offering investors exposure to not only the S&P 500 but also both long and inverse exposure in short-term VIX futures. The product provides target equity exposure of 85% to the S&P 500 using large cap ETFs, while the remaining 15% goes to the volatility strategy through one or more swaps. The fund trades in a light volume of roughly 7,000 shares a day and charges 71 bps in annual fees. The ETF shed nearly 3.2% in the past one-month period. ETRACS S&P 500 VEQTOR Switch ETN (NYSEARCA: VQTS ) This product entered the market 10 months ago and has been able to garner $22.8 million in its asset base. It follows the S&P 500 VEQTOR Switch Index, which seeks to simulate a dynamic portfolio that allocates between equity and volatility based on realized volatility in the broad equity market. The allocation to the equity component is dynamically adjusted to gain exposure to the S&P 500 with a target volatility of 10%. The remainder of the index is allocated to the S&P 500 VIX Futures Long/Short Switch Index that allocates between cash and long or short positions in an index of VIX futures with a constant one-month maturity. This means that when realized volatility is 10% or less, the index allocates 100% to the S&P 500 Index. When realized volatility exceeds 10%, the index allocates a portion to the S&P 500 Index and the remainder to the futures index. This approach results in higher expense ratio of 0.95%. Volume is also paltry at about 4,000 shares. VQTS was down nearly 8% over the past one month. Bottom Line Investors could definitely hedge volatility in their portfolio with the help of the above-mentioned products, which provide dynamic exposure according to the level of market volatility. These are least affected by any market turmoil and could prove great choices when it comes to protection against market downturn. Original Post