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Investors Favor Equity ETFs In 2015

By Patrick Keon Positive net flows into equity exchange-traded funds (ETFs) (+$55.5 billion) have far outweighed those into equity mutual funds (+$6.9 billion) for the year to date. Investors putting more net new money into equity ETFs as opposed to equity mutual funds has been true for every year except one (2013) since the global financial crisis. What jumps out about this year’s fund flows activity for equity ETFs is that nondomestic equity ETFs have dominated equity ETFs. Nondomestic equity ETFs have grown their coffers by almost $64 billion so far for 2015, while domestic equity ETFs have seen over $8 billion leave. If this trend holds through year-end, 2015 will be the first year since 2010 that nondomestic equity funds have had more net inflows than domestic ones. Nondomestic barely nudged out domestic for most net inflows for 2010 (+$34.0 billion versus +$33.7 billion), while the roughly $70-billion spread for this year would be by far the highest annual difference between the two groups for the 20 years Lipper has been tracking the data. It stands to reason then that nine of the ten largest net inflows among equity ETFs this year have been for nondomestic products. These nine ETFs are split up between MSCI EAFE (4), Europe (3), and Japan (2) products. The MSCI EAFE ETFs have taken in the most net new money (+$24.3 billion) of the three groups, followed closely by Europe ETFs (+$21.6 billion), with the Japan products recording more-modest gains (+$8.5 billion). The single largest positive net inflows belong to Deutsche X-trackers MSCI EAFE Hedged Equity ETF ( DBEF , +$12.9 billion). Conversely, the largest equity ETFs are two S&P 500 Index products: SPDR S&P 500 ETF Trust ( SPY , $168.0 billion of assets under management) and iShares Core S&P 500 ETF ( IVV , $63.8 billion of assets under management); each has seen money leave this year. SPY has had net outflows of almost $36 billion for YTD 2015, while IVV is down $1.1 billion.

Direxion To Close Down 3 Leveraged ETFs

The Direxion Shares ETF Trust has decided to cease trading three of its leveraged products after the closing session on October 20, 2015. The decision, based on the recommendation of the funds’ sponsor Rafferty Asset Management, LLC, was taken due to the funds’ inability to attract sufficient investment assets. We believe strong competition in the asset class and pitfalls of investing in leveraged ETFs in this turbulent time with high volatility might have kept investors away from these funds. Leveraged ETFs are designed to magnify returns of the underlying index. However, these products lose their asset value during a highly volatile market environment, particularly in the long term. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as, weeks or months) (read: Understanding Leveraged ETFs ). Let’s discuss the three products, serving divergent interests, which are about to be closed down (see all Leveraged Equity ETFs here). Direxion Daily 7-10 Year Treasury Bull 2X Shares ETF (NYSEARCA: SYTL ) SYTL tracks the NYSE 7-10 Year Treasury Bond Index, which is a multiple-security fixed income index that aims to track the total returns of the intermediate 7 to 10 year maturity range of the U.S. Treasury bond market. This product provides two times (2x) exposure to the daily performance of the underlying index. The fund has been overlooked by investors as it has garnered only $4.5 million in assets since its inception in July last year. It charges 60 bps in annual fees from investors. However, the product gained 3.8% so far this year. The closure of this ETF seems unfortunate at a time when investors are flocking toward bond ETFs due to global stock market instability and Fed’s reluctance to raise interest rates in the near term, as lower rates push the yields down, boosting the prices for the bonds. Investors still interested to play the leveraged Treasury bond ETF category could consider the more popular ProShares Ultra 7-10 Year Treasury ETF (NYSEARCA: UST ) , which provides two times exposure to the Barclays Capital U.S. 7-10 Year Treasury Index. This product has roughly $95 million in AUM and charges 95 bps in fees. The fund returned 4.8% in the year-to-date timeframe. Direxion Daily Mid Cap Bull 2X Shares ETF (NYSEARCA: MDLL ) MDLL follows the S&P Mid Cap 400 Index, measuring the performance of the mid-cap segment of the U.S. equity universe. It seeks daily investment results of 200% of the performance of the benchmark index. The fund is almost neglected gathering a meager $1.5 million in assets since its inception in July last year. It charges 60 bps in fees from investors and was down 15.7% in the year-to-date period. The closure of this fund doesn’t look good either at a time when mid-cap funds are favored by investors due to their potential to move higher in difficult times, especially if political issues or financial instability creep into the picture. Investors still interested in leveraged mid-cap ETFs could consider the Direxion Daily Mid Cap Bull 3x Shares ETF (NYSEARCA: MIDU ) by the same issuer. The fund seeks investment results of 300% of the price performance of the S&P Mid Cap 400 Index. It has $54 million in AUM and charges 95 bps in fees. The fund lost 5.9% so far this year. Direxion Daily Basic Materials Bull 3X Shares ETF (NYSEARCA: MATL ) MATL tracks the Materials Select Sector Index, which includes companies from the chemicals, metals & mining, paper & forest products, containers & packaging, and construction materials industries. It provides three times (3x) exposure to the daily performance of the underlying index. The fund was hardly noticed by investors as it has accumulated only $2.2 million in assets since its launch in June 2011. It charges 95 bps in annual fees from investors. The basic materials sector has been dragged down by weak agricultural fundamentals, sluggish demand in energy markets and persistent slowdown in China – the world’s second largest consumer of raw materials. This might have made the fund an unpopular choice among investors. The product lost 32.5% in the year-to-date timeframe. Link to the original post on Zacks.com

Guide To The 7 Most Popular Financial ETFs

With the U.S. economy hanging between loose and (looming) tight monetary policies, a quick peek at the backbone of the economy, the financial sector, seems mandatory. The sector, which makes up the around one-fifth of the S&P 500 index, emerged a winner in the Q2 earnings season, having tided over an average start to 2015 and a sluggish finish to 2014. Several factors including fewer litigation charges, effective cost control measures and modest improvement in core businesses gave Q2 earnings a boost. The Zacks Earnings Trend also validated this uptrend especially on the earnings front. Total earnings were up 7.3% on 1.6% revenue growth with beat ratios of 66.7% and 65.1%, respectively. The performance bettered what we saw from the finance sector companies in other recent quarters. Among the bunch, investment bankers and real estate segment delivered strong growth on both lines while major banks scored on the bottom line. Not only this, the sector is due for more outperformance in the quarters to come. As per the Zacks Earnings Trend issued on September 4, 2015, the finance sector is expected to witness 8.6% earnings expansion in Q3 and 15.1% in Q4. Very few sectors are able to attain this envious growth rate especially given the even-increasing global growth concerns. Overall, increased investment banking activity thanks to solid deals in the U.S. ranging from mergers and acquisitions to IPOs along with loan growth, sound trading business and cost containment efforts were behind the recent success. Investors should note that the sector gained momentum despite the challenging interest rate backdrop. Since the Fed is likely to hike rates sometime this year, this corner of the market should soar on improving interest rate margins. This is because banks borrow money at short-term rates and lend the capital at long-term rates thereby benefitting from a widening spread between long- and short-term rates. Further, U.S. banks now have much healthier balance sheets and their quality of earnings is improving on a stepped-up economy. Given this, investors might look at the popular financial ETFs mentioned below and position their portfolio better prior to the Fed lift-off. Financial Select Sector SPDR ETF (NYSEARCA: XLF ) The most popular financial ETF on the market, XLF follows the S&P Financial Select Sector Index. This fund manages about $17.5 billion in assets and trades in heavy volume of roughly 39 million shares a day. The ETF charges 15 bps in fees per year from investors. In total, the fund holds about 90 securities in its basket with the top five firms accounting for about 35% share. Other firms hold less than 2.77% of assets. In terms of industrial exposure, the product is tilted toward banks at 36.9% while insurance, REITs, capital markets and diversified financial services account for a double-digit allocation each. The fund currently yields 1.88% in annual dividend and has lost 5.3% so far this year. The ETF has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook. Vanguard Financials ETF (NYSEARCA: VFH ) This ETF is now home to $3.04 billion in assets. The product holds 563 stocks in its basket with highest allocations to Wells Fargo (NYSE: WFC ), JPMorgan (NYSE: JPM ) and Bank of America (NYSE: BAC ). Diversified banks is the key focus of the fund with about 24.3% exposure followed by regional banks (10.2%). With an expense ratio of just 12 basis points, VFH is a cheap way of getting a diversified exposure to the financial services companies. The fund’s dividend yield is 1.92%. The fund is off over 6% in the year-to-date frame (as of September 8, 2015) and currently has a Zacks ETF Rank #1. SPDR S&P Bank ETF (NYSEARCA: KBE ) This fund tracks the S&P Banks Select Industry Index and has an AUM of $2.7 billion. Volume is good as it exchanges more than 2 million shares a day while expense ratio is at 0.35%. The product holds a diversified basket of 65 stocks with none holding more than 1.74% of total assets. From a sector look, about three-fourths of the portfolio is allotted to regional banks while thrifts & mortgage finance, diversified banks, asset management & custody banks and other diversified financial services take the remainder. KBE currently has a dividend yield of 1.69%. The ETF has added 1.4% in the year-to-date time frame and holds a Zacks ETF Rank #2 (Buy). SPDR S&P Regional Banking ETF (NYSEARCA: KRE ) This is yet another popular ETF in the banking space with AUM of nearly $2.31 billion and average daily volume of roughly 4.7 million shares. The product follows the S&P Regional Banks Select Industry Index, charging investors 35 basis points a year in fees. The product holds a well-diversified basket of 93 stocks. It uses an equal-weighted strategy and hence minimizes concentration risk. None of the individual stocks form more than 1.45% of total fund assets. The fund has given more than 2% returns in the year-to-date frame. It has also a Zacks Rank #2. iShares U.S. Financials ETF (NYSEARCA: IYF ) The fund looks to track the Dow Jones U.S. Financials Index and puts $1.48 billion of assets in 284 holdings. The fund is moderately spread out across each holding with the highest exposure of 6.38% going to Wells Fargo. Banks is the top industry in the fund with about one-third of exposure followed by diversified financials (25%) and real estate (20.3%). The fund charges 45 bps in fees and yields about 1.52% annually (as of September 8, 2015). The fund has a Zacks ETF Rank #3 (Hold). First Trust Financials AlphaDEX ETF (NYSEARCA: FXO ) The fund follows a modified equal-dollar weighted index and invests about $885.4 million of assets in 172 holdings. It is devoid of the company-specific concentration risk as no stock accounts for more than 1.29% of the basket. Insurance gets the top priority in the fund with over 34% focus while REIT and banks also have double-digit exposure in it. The fund charges 80 bps in fees and yields 1.36% per annum. The fund has lost about 1.5% so far this year and has a Zacks ETF Rank #3. iShares U.S. Financial Services ETF (NYSEARCA: IYG ) This product follows the Dow Jones U.S. Financial Services Index, holding 112 stocks in its basket. It is highly concentrated on the top two firms – WFC and JPM – making up for over one-fifth of the portfolio. Other firms hold less than 7.72% share. Banks dominates the fund’s portfolio at 56% while financial services makes up for the remainder. The fund has amassed $880 million in its asset base and sees moderate average daily volume of over 150,000 shares. It charges 45 bps from investors. The product has lost about 3% so far in the year and currently yields 1.34% in annual dividends. IYG has a Zacks ETF Rank #3. Link to the original post on Zacks.com