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Will Consumer Staples ETFs Continue To Shine In 2016?

Despite a moderate recovery in the U.S. economy, investors are skeptical about the global issues that have been haunting the markets lately. The global economic slowdown and financial mayhem in China are the main reasons behind the stock market volatility and the decline in the global commodity complex. Also, stronger U.S. dollar, lower traffic and weakness in oil and other commodity sectors are adding to the woes. In fact, consumer confidence – a key determinant of the economy’s health – declined drastically in February, marking the lowest in seven months, signaling that the overseas turmoil is taking a toll on the U.S. economy. According to recent Conference Board data , the Consumer Confidence Index dipped to 92.2 in February from January’s revised reading of 97.8. This indicates the lowest level since July 2015. A slump in consumer confidence would definitely impact consumer spending, which accounts for over two-thirds of U.S. economic activity. The overall tone of the global market remains soft, as we can estimate from the GDP figures, according to the advance estimate released by the Bureau of Economic Analysis . GDP struggled at 1%, after advancing 1.9% and 3.8% in the third and second quarter of 2015, respectively. Nevertheless, market experts anticipate GDP growth of 2% for the January-March quarter on the back of an improving job scenario – with the unemployment rate hovering around 4.9% – and low gas prices that will help increase household wealth and eventually boost consumer spending. In addition to this, improving home sales, higher business and government spending and a buildup in inventories are some favorable economic indicators that play a key role in raising buyers’ confidence. We expect this positive sentiment to translate into higher consumer spending in 2016. Needless to say, the equity markets have become extremely volatile and the overall economic picture is quite bleak. However, we expect to witness a slow but steady recovery in the consumer staples industry, owing to the gradual improvement in consumer spending. Playing the Sector through ETFs Owing to its defensive nature, this sector is likely to outperform when equity markets are bearish and underperform when bullish. The instability in the sector due to factors like U.S. and global exposure can be countered with a wide array of ETFs. The ETFs can act as an excellent investment medium for those who are interested in a long-term exposure within the consumer staples sector. For those interested in taking a look at consumer staples, we have highlighted a few ETFs tracking the industry, any of which could be an attractive pick: Consumer Staples Select Sector SPDR ETF (NYSEARCA: XLP ): Launched on Dec. 16, 1998, XLP is an ETF that seeks investment results corresponding to the S&P Consumer Staples Select Sector Index. This fund consists of 40 stocks of companies that manufacture and sell a range of branded consumer packaged goods. The top holdings include The Procter & Gamble Co. (NYSE: PG ), The Coca-Cola Company (NYSE: KO ) and Philip Morris International, Inc. (NYSE: PM ). The fund’s expense ratio is 0.14% and it pays out a dividend yield of 2.50%. XLP had about $9.345 billion in assets under management as of March 1, 2016. Vanguard Consumer Staples ETF (NYSEARCA: VDC ): Initiated on Jan. 26, 2004, VDC is an ETF that tracks the performance of the MSCI US Investable Market Consumer Staples 25/50 Index. It measures the investment return of large, mid, and small-cap U.S. stocks in the consumer staples sector. The fund has a total of 100 stocks, with the top three holdings being Procter & Gamble, Coca-Cola and PepsiCo, Inc. (NYSE: PEP ). It charges 0.12% in expense ratio, while the yield is 2.53% as of now. VDC managed to attract $3.1 billion in assets under management till Jan. 31, 2016. First Trust Consumer Staples AlphaDEX (NYSEARCA: FXG ): FXG, launched on May 8, 2007, follows the equity index called StrataQuant Consumer Staples Index. FXG is made up of 41 consumer staples securities, with the top holdings being Tyson Foods, Inc. (NYSE: TSN ), Hormel Foods Corp. (NYSE: HRL ) and Constellation Brands, Inc. (NYSE: STZ ). The fund’s expense ratio is 0.62% and the dividend yield is 1.67%. It had $2.44 billion in assets under management as of March 1, 2016. Guggenheim S&P 500 Equal Weight Consumer Staples (NYSEARCA: RHS ): Launched on Nov. 1, 2006, RHS is an ETF that seeks investment results corresponding to the S&P 500 Equal Weight Index Consumer Staples. This is an equal-weighted fund and constitutes 38 stocks, with the top holdings being Tyson Foods, Campbell Soup Company (NYSE: CPB ) and Reynolds American, Inc. (NYSE: RAI ). The fund’s expense ratio is 0.40% and dividend payout 1.75%. RHS had about $622.9 million in assets under management as of March 2, 2016. Fidelity MSCI Consumer Staples ETF (NYSEARCA: FSTA ): FSTA, launched on Oct. 21, 2013, is an ETF that seeks investment results corresponding to MSCI USA IMI Consumer Staples Index. This is a cap-weighted fund and constitutes 102 stocks, with the top holdings being Procter & Gamble, Coca-Cola and PepsiCo. The fund’s expense ratio is 0.12% and the dividend yield is 2.84%. FSTA had about $257.6 million in assets under management as of Jan. 31, 2016. Original Post

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