Category Archives: etf

Global Manufacturing Picks Up: ETFs To Watch

The month of March will be remembered for the revival in the manufacturing sector in the world’s two largest economies – the U.S. and China. While a stronger dollar and huge capex cuts by energy companies to fight back the plunge in oil prices hurt the U.S. manufacturing sector, soft demand in the wake of global growth worries can be held responsible for the overall global slowdown. However, things took a turn in March as signs of stabilization showed up. Let’s delve deeper into the data. Finally Chinese Manufacturing in Positive If we talk of manufacturing slowdown, China comes first to mind. But after posting sluggish factory output data since July 2015, the economy posted growth in March. China’s official manufacturing purchasing managers’ index (PMI) came in at 50.2 for March , which beat Reuters’ forecast of 49.3 and February’s reading of 49.0. Any reading at or above 50 suggests expansion in activity. While this official data considers larger companies, another index, namely Caixin Manufacturing PMI, considers smaller or medium-sized companies. Investors should note that the Caixin Manufacturing PMI for March also rose to 49.7 from 48.0 in February, “marking the first increase from the previous month in a year.” Improving Trend in the U.S. A five-month long losing streak also bucked the trend in the U.S. in March. The ISM manufacturing data expanded to 51.8 in March from 49.5 in February buoyed by new orders and increased output. The data came above the Wall Street Journal’s expectation of 50.5. Out of the 18 manufacturing industries, 12 reported expansion in March. What Cooks Up in the Euro Area? Coming to the Eurozone, the Markit Eurozone Manufacturing PMI came in at 51.6 in March 2016, surpassing a preliminary reading of 51.4 and 51.2 recorded in February. The reading also bettered the forecast of 51.4 . All is not well across the globe. But noticeable improvement in the big three gives us reasons to look at the below-mentioned international industrial ETFs. Global – iShares Global Industrials ETF (NYSEARCA: EXI ) The fund looks to track the S&P Global 1200 Industrials Sector Index. The $16.2 million ETF is heavy on the U.S. which takes about 53% of the basket. General Electric (NYSE: GE ) (8.62%), 3M Co. (NYSE: MMM ) (2.93%) and Siemens AG ( OTCPK:SIEGY ) (2.56%) are the top three stocks of the fund. The fund charges 48 bps in fees. It added 0.5% in the last one month (as of April 5, 2016). China – Global X China Industrial ETF (NYSEARCA: CHII ) The Global X China Industrial ETF seeks to provide investment results of the Solactive China Industrials Index. The $3.6 million fund charges 65 bps in fees. This fund is heavy on building and construction (34.4%) and machinery and equipment (31.6%) industries. The fund has exposure to about 40 stocks. CHII added 2.9% in the last one month (as of April 5, 2016). U.S. – Industrial Select Sector SPDR ETF (NYSEARCA: XLI ) This product tracks the Industrial Select Sector Index. General Electric occupies the top spot with an 11.7% allocation, while 3M, Honeywell (NYSE: HON ) and Boeing (NYSE: BA ) have a combined exposure of over 10% in the fund. XLI has garnered $6.65 billion in assets and trades in heavy volume of 13.8 million shares per day. It has a low expense ratio of 0.14%. The fund has the highest exposure to aerospace and defense (25.3%), followed by industrial conglomerates (21.6%). The product gained 2.4% in the last one month (as of April 5, 2016). Original Post

Time To Worry About CORN ETF?

Anemic growth in the global economy and lingering concerns over macro uncertainty have dragged down overall agricultural consumption so far this year, hurting corn export sales. A cut in Chinese corn imports brought its share of troubles. And the most important deterrent – a strong U.S. dollar – is making exports expensive. This is bad news since corn is one of the most important U.S. crops and is the most important agricultural product in many states. And overall, the nation enjoys the status of the world’s largest exporter of the staple. The future of the staple doesn’t look very bright given expanding stockpiles and increasing planting given that the corn market is already oversupplied. Per the Agriculture Department report released last week, U.S. farmers are expected to sow 93.6 million acres of corn this year compared with 88 million last year, representing an increase of about 6%. The agency’s report also revealed that corn stockpiles totaling 7.81 billion bushels on March 1 were at the highest level in the past 30 years. Stockpiles were up from 7.75 billion bushels on the same date last year. With corn prices sinking to a nearly three-month low, investor focus is expected to be on the only ETF in the market that targets this important commodity, Teucrium Corn ETF (NYSEARCA: CORN ) . CORN has been down more than 4.1% so far this year (as of April 5, 2016), underperforming the broad agricultural commodity fund PowerShares DB Agriculture ETF (NYSEARCA: DBA ), which was down 2.2% and the equity-based fund SPDR S&P 500 Trust ETF (NYSEARCA: SPY ), which returned over 1.7%. Corn ETF in Detail The fund provides investors a direct exposure to corn. The fund looks to reduce backwardation and contango. The fund looks to reduce contango by spreading out exposure across the curve, as opposed to just rolling over from front month to front month. The fund will be using the second-to-expire contract (35%), the third-to-expire contract (30%), and the December contract that is following the third-to-expire contract (35%). The product is expensive as it charges 2.92% in fees per year, which is steep compared with the average expense ratio prevailing in agricultural commodities ETFs. It trades in moderate volumes of nearly 30,000 shares on an average daily basis that increases the trading cost in the form of a somewhat wide bid/ask spread. The fund has so far attracted $57.2 million in assets. CORN has fallen almost 20% in the last one year. As such, CORN currently carries a Zacks ETF Rank of 4 or “Sell”, indicating that the fund might face significant bearishness in the months ahead. So, for the time being, if investors are looking to play this commodity market, a look to other segments might be necessary. Original post

Pain Or Gain Ahead For Bank ETFs?

The going has been tough for bank ETFs for quite some time now mainly due to the twin attacks of a delay in further Fed rate hikes after a liftoff in December and the energy sector lull. Moreover, UBS Group AG’s (NYSE: UBS ) moderate earnings for the fourth quarter of 2015 triggered a sell-off in banking stocks because the bank pointed to several macroeconomic headwinds and geopolitical issues that will bother its operations in the near term. Not only banking stocks, broad-based risk-on sentiments took a backseat in the first quarter of 2016. Now, with the earnings season impending and the broader markets rebounding, albeit slowly, let’s catch a glimpse of the looming headwinds and tailwinds to the banking sector. Headwinds Tightening Yields: The benchmark U.S. 10-year Treasury note yield slipped to 1.76% on April 6, 2016 (down 48 since the start of the year) while the yield on the short-term Treasury note (one year of maturity) fell to 0.55% on the same day (down just 6 bps since the beginning of 2016). The narrowing gap between the short and long-term yields has been a cause of concern for the backing sector (read: Bank ETFs Hurt by the Dovish Fed ). In fact, in early March, the spread between the two-year and 10-year Treasury yields tapered the most since 2009. Narrowing spread between long- and short-term rates hurts net interest margin, which a key metric for the banking sector. Energy Sector Exposure: U.S. banks have significant exposure to the long-ailing energy sector where chances of credit default are higher. In February, the S&P cut its outlook on several regional banks with the highest energy sector exposure citing a likely increase in non-performing assets. Among the biggies, Wells Fargo (NYSE: WFC ) reported around $42 billion oil and gas credit in February. The situation is the same for JPMorgan (NYSE: JPM ), the energy loan of which accounts for 57% of the investment-grade paper. JPMorgan has ‘ set aside $600 million’ for loan losses emanating from the energy, metals and mining sectors. Panama Papers Scandal: The leaked documents from Panama Law firm Mossack Fonseca & Co. revealing global business leaders and officials moving money to international tax havens may take a toll on bank stocks. Banks may now face more stringent scrutiny and litigation issues to arrest means of evading taxes. Tailwinds Increased Activity: Having described the stress situation, we would like to note that fears of a 2008-like recession or financial market crash are perhaps exaggerated. The lower interest rates should boost capital market activities and benefit banks in other ways. After all, bank stocks have gained their lost ground in the U.S. in a rock-bottom interest rate environment (see all Financials ETFs here). Compelling Valuation: The finance sector has a current-year P/E of 12.6 times, reflecting a 27.6% discount to the S&P while its next-year P/E stands at 11.5 times, reflecting a 25.3% discount to the S&P 500. Such an intriguing valuation might also help the sector to score gains as and when favorable industry dynamics hit the space. ETF Impact All in all, bank stocks are on the fence with pain and gain on either side, though downside risks look higher at the current level. So, investors seeking a financial sector exposure can have a look at the following ETFs: The PowerShares KBW Bank Portfolio ETF (NYSEARCA: KBWB ) , with considerable exposure to Wells Fargo, JPMorgan and US Bancorp (NYSE: USB ). The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook. SPDR S&P Bank ETF (NYSEARCA: KBE ) also has similar holdings; but it holds stocks in an equal-weighted manner. No stock accounts for more than 2.19% of the fund and diversifies stock-specific risks pretty well. KBE has a Zacks ETF Rank #3 with a High risk outlook. SPDR S&P Regional Banking ETF (NYSEARCA: KRE ) takes into account companies that do business as regional banks or thrifts. KRE also has a Zacks ETF Rank #3. iShares MSCI Europe Financials Sector Index ETF (NASDAQ: EUFN ) measures the combined equity market performance of the financial sector of developed market countries in Europe. The fund has a Zacks ETF Rank #3. Link to the original post on Zacks.com