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ETF Strategies To Gain From In The Rest Of 2016

After a lackluster patch, the broader market showed some strength in Q2, but occasional volatility is still showing up. The S&P 500 is striving to stay in the green from the year-to-date look (as of May 18, 2016) (read: S&P 500 Again Shows Weakness: Go Short with These ETFs ). Several marked changes were noticed during this time, including the solid comeback in oil prices and subtle stabilization in the Chinese economy. But it seems that the S&P 500 is far from seeing its past success in the rest of this year. Though the U.S. economy started taking root lately and is expected to see upbeat growth in Q2, volatility will likely rule the market. Imminent ‘Brexit’ vote, further Fed rate hikes and the U.S. election in November will definitely not let the market stay calm (read: British ETFs in Focus on Brexit Talks ). Investors should note that though the Fed hike symbolizes a steady U.S. economy, the imminent reaction is a crash in the stock market in fear of a dearth in cheap money inflows. Against this backdrop, investors may want to know some worthwhile investing strategies. For them we highlight the trending policies in the market and some profitable ETF bets. Analysts Muted on Stocks Bank of America believes that the S&P 500 could slip to its February lows, while Morgan Stanley has applied the famous maxim “Sell in May and go away” to stocks at least till November. Goldman Sachs has also cut its outlook on equities to “neutral” over the coming one year. Now Goldman has gone “neutral” on U.S. (upgraded), Europe (downgraded), Japan (downgraded) and Asia ex-Japan equities. Europe and Japan definitely bear the burden of stronger currencies and weaker financial sectors due to the ongoing negative interest rates. On the other hand, U.S. equities may suffer from choppy earnings, overvaluation concerns and the Fed move. The ripple effects of any crash in the S&P 500 may shake stocks worldwide. So, it’s better to bet on the ProShares Short S&P 500 ETF (NYSEARCA: SH ) , the ProShares Short MSCI Emerging Markets ETF (NYSEARCA: EUM ) , or the ProShares Short MSCI EAFE ETF (NYSEARCA: EFZ ) . Time for Money Market Instruments? As per Goldman, cash can be an overweight pick this year due to fewer chances of a Fed rate hike. In such a situation, investors can bet on cash-like money market ETFs like the Guggenheim Enhanced Short Duration Bond ETF (NYSEARCA: GSY ) and the SPDR Barclays 1-3 Month T-Bill ETF (NYSEARCA: BIL ) . One thing is for sure, a rate hike will hit both stocks and bonds. This is because as the Fed enacts, yields will jump pushing bond prices down. Even Goldman is worrying about the interest rate shock. Investment Grade Corporate Bonds: Safety + Yield Investors can also consider long-term corporate bond ETFs like the Vanguard Long-Term Corporate Bond Index ETF (NASDAQ: VCLT ) for higher yields than treasuries. Goldman Sachs now expects its year-end 10-year yield to be 2.4%, down from the 2.75% it had projected in the first quarter. Bank of America Merrill Lynch pared down its forecast for the yearend 10-year yield to 2% from 2.65% at the start of the year. Morgan Stanley projects a lower 10-year yield at 1.75%, down from 2.7% when the year had started. So, the drive for higher yield is expected in the marketplace. However, since corporate bonds are riskier in nature, honing in on investment-grade ones is a prerequisite. After all, corporate leverage is peaking, so investors need to be aware of default risks. VCLT yields 4.30% annually (as of May 18, 2016). Play Rebound in Oil; but Tread Cautiously Oil prices have seen a lot in last two years. Now that things are turning in favor for oil with shrinking supply glut and a possible recovery in demand, a play on oil is warranted. With oil, investors can also bet on high-yield bond ETFs like the AdvisorShares Peritus High Yield ETF (NYSEARCA: HYLD ) . This is because of the fact that the U.S. energy companies are closely tied to the high-yield bond market, with the former comprising a considerable amount of junk bond issuance. Volatility to Crack the Whip: Play Risk Aware Volatility is expected to be strong in 2016. Investors can deal with this in various ways. While low volatility ETFs like the PowerShares S&P 500 Low Volatility Portfolio ETF (NYSEARCA: SPLV ) can be an option, defensive ETFs like the QuantShares U.S. Market Neutral Anti-Beta ETF (NYSEARCA: BTAL ) and risk-aware ETFs like the SPDR SSgA Risk Aware ETF (NYSEARCA: RORO ) can be tapped too. And last but not the least in queue are volatility ETFs themselves such as the C-Tracks on Citi Volatility Index ETN (NYSEARCA: CVOL ) and the ProShares VIX Short-Term Futures ETF (NYSEARCA: VIXY ) . Notably, as the name suggests, volatility products are quite rowdy in nature and thus suit investors with a short-term notion. Gold to Hit $1,400? Steep Fed tightening or not, the gold market looks shiny thanks to global political risks this year. Along with many other optimistic analysts, Denmark’s Saxo Bank A/S turned bullish on gold and projected that the price may hit as high as $1,400 this year. This invariably puts gold ETFs like the SPDR Gold Trust ETF (NYSEARCA: GLD ) in focus. Link to the original post on Zacks.com

2 Rising ETFs With 5% Yield

With global growth issues flexing muscles and corporate earnings falling flat, risk-on sentiments are finding it tough to sail smooth this year. Safe harbors like Treasury bonds are in demand, resulting in a decline in yields. As of May 16, 2016, yields on the 10-year U.S. Treasury note were 1.75%. As a matter of fact, the 10-year U.S. Treasury note did not see 2% or more yield after January 28, 2016. A dovish Fed, which lowered its number of rate hike estimates for 2016 from four to two in its March meeting citing global growth worries and moderation in U.S. growth, was also behind the decline in bond yields. Even Goldman Sachs cut its forecast for 10-year U.S. Treasury bond yields over the coming few years. Goldman Sachs now expects its year-end 10-year yield to be 2.4%, down from the 2.75% it projected in the first quarter. It does not expect the 10-year yield to rise above 3% to close out a year before 2018 (read: Time for Investment Grade Corporate Bond ETFs? ). Needless to say, this is a difficult situation for income investors that forced many to try out almost every high-yielding investing option. But higher yields sometimes come with higher risks. So, it is better to bet on investing areas that are better positioned from the return perspective and also offer a solid yield. One such option is preferred ETF. What is a Preferred Stock? A preferred stock is a hybrid security that has characteristics of both debt and equity. These do not have voting rights but a higher claim on assets than common stock ( Complete Guide to Preferred Stock ETF Investing ). That means that dividends to preferred stock holders must be paid before any dividend is paid to the common stock holders. And in the event of bankruptcy, preferred stock holders’ claims are senior to common stockholders’ claims, but junior to the claims of bondholders. The preferred stocks pay stockholders a fixed, agreed-upon dividend at regular intervals, like bonds. Most preferred dividends have the same tax advantage that the common stock dividends currently have. However, while the companies have the obligation to pay interest on the bonds that they issue, the dividend on a preferred stock can be suspended or deferred by the vote of the board. Preferred stocks generally have a low correlation with other income generating segments of the market like REITs, MLPs, corporate bonds and TIPs. However, unlike bond prices, these are also sensitive to downward changes in interest rates. If interest rates fall, issuers have the option to call shares and reissue them at lower rates. Investors should note that preferred ETFs have hit 52-week highs. Below we highlight two such options that are rising and also offer more than 5% yield. PowerShares Preferred Portfolio ETF (NYSEARCA: PGX ) The fund holds a portfolio of 237 preferred stocks in its basket, tracking the BofA Merrill Lynch Core Plus Fixed Rate Preferred Securities Index. It charges 50 bps in fees. Financials (85.1%) dominates this fund followed by utilities (6.5%). With the 30-day SEC payout yield of 5.72%, the fund is a solid income destination. The fund advanced 6.3% in the last three months (as of May 16, 2016). SPDR Wells Fargo Preferred Stock ETF (NYSEARCA: PSK ) The 151-securities portfolio invests 79% of the basket in the financial sector. The 30-Day SEC yield is 5.18% (as of May 13, 2016). The fund charges 45 bps in fees and added 5.7% in the last three months (as of May 16, 2016). Link to the original post on Zacks.com

Forget Broader Retail; Bet On Online Retail ETFs

Retail earnings in the first-quarter earnings season and retail sales data for April were completely diverging, with the former mauling investor sentiment and the latter ushering in sweet surprises. The reason for this deviation was disappointing results from several traditional brick-and-mortar operators, while web-based shopping surged. In a nutshell, consumers’ purchasing pattern is changing. Department stores like Macy’s (NYSE: M ), Kohl’s (NYSE: KSS ), J.C. Penney (NYSE: JCP ), Nordstrom (NYSE: JWN ) and many others soured investor mood this earnings season. With this, while many started to wonder if consumers are running short of cash and doubt economic well-being, a 1.3% jump in retail sales (sequentially) in April cleared all misconceptions. As per Trading Economics , sales growth was witnessed in 11 out of the 13 major categories. Sales at motor vehicle and parts (up 3.2%), gasoline stations (2.2%) and non-store retailers (2.1%) were the major growth drivers. In fact, April retail sales beat economists’ forecast of a 0.8% rise . Online Retailers Crushing Earnings Estimates The online e-commerce behemoth Amazon (NASDAQ: AMZN ) came up with stellar Q1 results. The company trumped the Zacks Consensus Estimate on both lies by wide margins. Higher-than-expected results were credited to increased demand for quick-turnaround delivery and gadgets like the Kindle and Echo as well as a fast-growing cloud computing business. Another top player in this field, eBay Inc. (NASDAQ: EBAY ), beat on both lines. In fact, the company partnered with BigCommerce to benefit online retailers. Chinese e-commerce giant Alibaba Group’s (NYSE: BABA ) revenues came in higher than our estimate, though profitability was a letdown. This clearly explains online-retailers’ edge over the mall-based retailers. Inside the Rise of Online Retailers As of now, online retail sales make up one-tenth of total retail and about 5% of annual e-commerce revenue in the U.S. The space is developing fast with the increased usage of smartphones and other mobile Internet devices. As per Statista , in 2013, 41.3% of global internet users had purchased products online; the figure is expected to grow to 46.4% by 2017. More than the U.S., the real growth opportunities lay in the underpenetrated emerging markets. Forget Retail, Be Bullish on Online Retail This situation makes it crucial to have a pure-play online ETF. Amplify Exchange Traded Funds thus launched a new product, namely the Amplify Online Retail ETF (NASDAQ: IBUY ), about a month ago. Except this, it is hard to get targeted exposure to online retail. But several consumer discretionary and internet funds serve this idea to a large extent. Below, we highlight all of them in detail. IBUY in Focus This new fund holds about 44 stocks and charges 65 bps in fees. The fund is heavy on the U.S. (75%), followed by China (8%). The fund’s top three holdings are Overstock.com (NASDAQ: OSTK ), Del and Wayfair (NYSE: W ). No stock accounts for more than 3.39% of the portfolio. Emerging Markets Internet & Ecommerce ETF (NYSEARCA: EMQQ ) The fund gives exposure to the internet and ecommerce sectors of emerging economies. Its top three holdings are Tencent ( OTCPK:TCEHY ) (8.47%), Alibaba (8.36%) and Naspers ( OTCPK:NPSNY ) (6.8%). The fund charges about 86 bps in fees. Since Goldman sees a boom in the Chinese internet segment, this ETF is worth a look given its notable exposure to the Chinese e-commerce segment. Apart from these two, investors can also look at the First Trust Dow Jones Internet Index ETF (NYSEARCA: FDN ), with considerable exposure on Amazon (11.93%) and eBay (3.69%). Among the broad retail ETFs, the VanEck Vectors Retail ETF (NYSEARCA: RTH ) deserves a look, as it invests about 15.43% weight in Amazon. Original Post