Tag Archives: india

India ETFs To Soar On Rate Cut?

The Reserve Bank of India (RBI) lowered its key rate to an over five-year low on April 5, 2016. This was the first cut in 2016 followed by four rate cuts in 2015. On Tuesday, the central bank slashed its key interest rate by 25 basis points (bps) to 6.50%, in line with the market expectations, to bolster business in the economy. The Indian stock market took giant strides in 2014 on pro-growth political changes only to lose in 2015, probably due to political deadlock. So far this year (as of April 4, 2016), most of the India ETFs are in the red, but could turn around on monetary policy easing. Not only this, the Reserve Bank of India hinted at accommodative monetary policy going forward, giving market experts reasons to see another 25 bps cut later this year, per Reuters . The move was prompted by easing inflation. Raghuram Rajan, the RBI governor, sounded hopeful of hitting the 5% inflation target for March 2017. The next target is 4.2% by March 2018. Investors who put more emphasis on slowing GDP data for the U.S. economy for the October-December quarter (7.3% followed by 7.7% growth rate in the second quarter), will now find some reason to invest in Asia’s third-largest economy. This along with stubbornly low oil prices in the global market and a relatively stable currency in the wake of a subdued greenback should propel the Indian stock market in the days to come. After all, India is heavily reliant on imports to meet its energy requirements. So, a massive drop in oil prices last year came as a boon to the economy and saved India’s significant foreign exchanges. While all India ETFs should bounce following the rate cut, below we highlight three small-cap ETFs that might get an edge over their peers. This is because small-cap stocks rebound more than the larger ones when the domestic economy picks up. These pint-sized stocks are less affected by global market turmoil than their larger counterparts. iShares MSCI India Small Cap Index Fund (BATS: SMIN ) This product provides exposure to the small cap segment of the broad Indian stock market by tracking the MSCI India Small Cap Index. Holding 236 securities in its basket, it is widely spread out across number of securities with each holding less than 1.96% of assets. Consumer discretionary takes the top spot making up for one-fifth of the portfolio, closely followed by industrials (20.4%) and financials (17.8%). The fund is unpopular and illiquid with AUM of $63.1 million and average daily volume of 17,000 shares. It charges 74 bps in annual fees from investors. The fund is down 7.7% so far this year (as of April 4, 2016). India Small-Cap Index ETF (NYSEARCA: SCIF ) This fund also targets the small cap segment and tracks the Market Vectors India Small-Cap Index. Here again, financials occupies the top position from a sector look at 28.8% while industrials and consumer discretionary round off the next two spots. The fund has so far amassed $153.8 million in its asset base while charging 89 bps in annual fees. Volume is decent exchanging more than 84,000 shares in hand a day. The fund is up 10% so far this year (as of April 4, 2016). India Small Cap ETF (NYSEARCA: SCIN ) This $19.2 million fund invests about 23% in the financial sector followed by 22.85% in the industrial sector. Technology and utilities sectors also got double-digit exposure in the fund. In total, the fund gives exposure to 74 stocks. It charges 85 bps in fees and has lost about 13.1% so far this year (as of April 4, 2016). EGShares India Infrastructure ETF (NYSEARCA: INXX ) Apart from small-cap ETFs, infrastructure stocks and ETFs will also get a boost from this move. As this sector is debt-heavy in nature, a decline in interest rates will favor it. This ETF provides exposure to 30 Indian stocks. It is pretty well spread out across components with none of the securities holding more than 5.98% of assets. With respect to sector holdings, construction & materials takes the top spot at 17.3%, followed by electricity (16.5%), mobile telecommunications (15.1%) and industrial engineering (10.6%). The product has managed assets worth $40 million and trades in volume of nearly 22,000 million shares a day. It has an expense ratio of 0.85% and has lost 2.8% so far this year (as of April 4, 2016). Original Post

Country ETF Update

By Joseph Y. Calhoun The theme for Single Country ETFs over the last month is either countries that produce a lot of natural resources (commodities) or countries in which sane people don’t invest. Okay, maybe sanity isn’t the proper metric but surely investors who can’t afford to take a loss shouldn’t be investing in Russia, Peru or Turkey, all three of which make the top 10 for performance over the last 3- and 1-month periods. For the one-month period, just for kicks, Greece makes the top 10, another place the typical retiree probably ought not be chasing yield or returns. To be serious though, the performance of these Country ETFs proves one thing for sure – risk is not a static thing. Any market can become sufficiently cheap that investing in it can be a low risk endeavor. And some of these countries’ stock markets were very cheap before these rallies and even more importantly, some of them still are. Here’s the return rankings: Click to enlarge Click to enlarge This is part of the weak dollar/strong commodity/higher inflation expectations theme I’ve been writing about the last couple of months. As the dollar has softened, commodity prices have risen and stock markets in countries that are heavy commodity producers have risen dramatically, an indication that the sentiment had moved way too far in the other direction. Almost no one was expecting a commodity rally with the global economy – especially China – so weak. But a weak dollar is powerful stuff even if it isn’t fully realized. I think this rally has actually moved a little too far, too fast. Commodities and stock markets in countries where they are produced are due for a rest and the hawkish jawboning of the Fed last week started to take the froth off a bit. Based on the frequency and timing of the Fed’s passive/aggressive hawk/dove act, one could be excused for thinking maybe the object of their obsession is the stock market rather than real economy factors. But I digress and so does James Bullard. It may seem as if the central banks have control, that the dollar is trading in a range that is acceptable to all… something that happens only very rarely and surely won’t last. But in the simplified world of Keynesian economics, the strong dollar was the source of the recent market troubles, a harbinger or reflection of economic woes and therefore had to be nipped in the bud. If a strong dollar caused the problems, a weak one will cure them and the world is on board with that – to a point. Right now, all of these short-term moves don’t mean a thing though from a momentum standpoint, mere dead cat bounces from very oversold conditions. Not one of the Country ETFs in the 3-month or 1-month best return top 10 lists has a buy signal from our long-term momentum indicators. I do think that the dollar’s rise is over for now, though, and some of these will eventually turn out to have been great investments. But not yet. Patience is probably an investor’s best friend right now. As for valuation, using Market Cap/GDP, several of these stick out as cheap. Singapore, Spain, Russia, Brazil, India and Indonesia all look cheap relative to where they’ve traded historically. Watch the dollar carefully for clues about your stock investments. Generally, a weaker dollar will favor foreign equities over domestic. That’s a generalization so it doesn’t apply all of the time with all markets but it is a major factor for monetary as well as economic reasons. For investors, there are ways to cope with a weak dollar and higher inflation. For the Fed, I will just say what I’ve said before about their hope for higher inflation – be careful what your wish for, you just might get it good and hard.

Inside The New Sovereign High Yield Bond ETF By Cambria

Disappointing macroeconomic data, global market turbulence and threats to the stability of the U.S. economy have been making headlines since the beginning of the year, leading to volatility across all asset classes. Meanwhile, Treasury yields are also showing a downtrend. Yields on Japan’s benchmark 10-year government bond slid to sub-zero for the first time in February. Following the European Central Bank, Bank of Japan introduced negative interest rates in late January. Denmark, Sweden and Switzerland adopted similar measures. Because of these factors, high-income bond ETFs have gained a lot of popularity of late as investors continue to search for attractive and stable yield in the ultra-low rate interest environment. This trend continues with Cambria, which has launched a fund with a global coverage, focusing on the high-income space. In fact, the global footprint made the fund more attractive given the ultra-low interest rate backdrop prevailing in most developed economies. Below, we have highlighted the newly launched fund – the Cambria Sovereign High Yield Bond ETF (Pending: SOVB ) – in greater detail. SOVB in Focus Listed on the NYSE Arca, the product is an actively managed ETF and does not track any specific index. It seeks income and capital appreciation by investing in securities and instruments that provide exposure to sovereign and quasi-sovereign bonds. Cambria uses a quantitative model, with yield as the largest determinant to select bond exposures for the fund. The fund has an expense ratio of 0.59% and will pay dividend on a quarterly basis. It invests in liquid debt securities across the globe. From a country perspective, India takes the top spot with about 10% of the basket, followed by Brazil (8%), Russia (6.2%), China (5.9%) and Peru (5%). As for maturity, the fund is well diversified between bonds maturing in less than 5 years (33.6%), in 5-10 years (39.8%) and 10-20 years (26.6%). Launched in the last week of February, the fund has already amassed $2.6 million in its asset base. It is up 2.1% in the last 10 days. How Could it Fit in a Portfolio? The ETF could be well suited for income-oriented investors seeking higher longer-term returns with low risk. With interest rates being low in most developed nations, the appeal of high-income bonds has increased as these offer strong yields. Meanwhile, sovereign bonds are generally issued by the government of a country and considered one of the safest options in the bond fund category, and are ideal for a risk-averse investor. However, investors looking for a high-growth vehicle may not be satisfied with this product. Additionally, changes in currency exchange rates may affect the value of the fund’s investment adversely. Competition The ETF does not have any direct competitor, as there is currently no other actively managed sovereign high yield bond ETF available to U.S. investors. The fund provides investors a new way to play the high yield bond market with liquid sovereign and quasi-sovereign bonds. The product charges moderately high fees from investors annually due to its unique strategy. However, there are quite a few international bond ETFs which specifically target particular regions. Of these, the popular fund, iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEARCA: EMB ), has a total asset base of $5.1 billion. This fund tracks the JPMorgan EMBI Global Core Index, trades in heavy volume of 1.1 million shares per day and charges 40 bps in annual fees. Another fund targeting the emerging market bond space is the PowerShares Emerging Markets Sovereign Debt Portfolio ETF (NYSEARCA: PCY ) with AUM of nearly $2.7 billion and exchanging 919,000 shares a day. Apart from these, SOVB could also face competition from international high yield bond funds – the Market Vectors International High Yield Bond ETF (NYSEARCA: IHY ) with an asset base of $125.2 million, the iShares Global High Yield Corporate Bond ETF (BATS: GHYG ) with AUM of $87.6 million and the iShares Global ex-USD High Yield Corporate Bond ETF (BATS: HYXU ) with AUM of $160.8 million. Thus, SOVB has a good chance of making a name for itself if it manages to generate returns net of fees greater than the passively managed products in the international bond ETF space. The ETF’s plan of safer sovereign bond and its emphasis on liquidity are noteworthy, but its success is a huge factor of the returns it manages to generate. Original Post