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6 Nutritious ETFs To Consider On World Health Day

On World Health Day, we would like to draw investors’ attention to well-nourished ETFs that can immune a portfolio from market volatility that is so rampant now. Just like we need nutrients to lead a healthy life, given below are what an ETF portfolio needs to be in the pink. Quality Quality ETFs are generally rich on value characteristics as they focus on stocks with high quality scores based on three fundamentals – high return on equity, stable earnings growth, and low financial leverage. This approach seeks investments in safer stocks and reduces volatility when compared to plain vanilla funds. Academic research shows that high quality companies consistently deliver superior risk-adjusted returns than the broader market over the long term. More importantly, these stocks generally outperform in a crumbling market (read: How to Play the Choppy Market with Cheap Smart Beta ETFs ). While there are several quality ETFs available in the space, the iShares MSCI USA Quality Factor ETF (NYSEARCA: QUAL ) seems to be the most popular. This fund provides exposure to the stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth, and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index. In total, the fund holds 123 securities in its basket, which are pretty spread across a number of securities with none holding more than 5.03% of assets. From a sector look, information technology takes the top spot at 20.5%, followed by financials (16.0%), healthcare (14.5%) and consumer discretionary (14.2%). The product has amassed $2.3 billion in its asset base and charges just 15 bps in annual fees from investors. Average trading volume is good at around 317,000 shares per day. The fund has returned nearly 36.7% to date since its inception in July 2013. Low Volatility Low volatility products appear safe in a turbulent market, and reduce losses in declining markets. But these generate decent returns when markets rise. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these funds contain stocks of defensive sectors, which usually have a higher distribution yield than the broader markets (read: Low Volatility ETFs Still in Play ). In particular, the ultra-popular iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) having AUM of $11.4 billion and average daily volume of about 3 million shares, tracks the MSCI USA Minimum Volatility (NYSEARCA: USD ) Index. It offers exposure to 168 U.S. stocks having lower volatility characteristics than the broader U.S. equity market. The fund is well spread across a number of components with each holding less than 1.71% share. From a sector look, financials, healthcare, information technology and consumer staples occupy the top positions with double-digit exposure each. Expense ratio comes in at 0.15%. The fund has delivered returns of 44.1% over the trailing five-year period. Low Beta Low beta ETFs exhibit greater levels of stability than their market-sensitive counterparts and will usually lose less when the market is crumbling. Though these have lesser risks and lower returns, the funds are considered safe and resilient amid uncertainty. However, when markets soar, these low beta funds experience lesser gains than the broader market counterparts but are still considered healthy. The PowerShares Russell 1000 Low Beta Equal Weight Portfolio ETF (NASDAQ: USLB ) could be a solid pick. This ETF has debuted in the space last November and has attracted $128 million in its asset base so far. It follows the Russell 1000 Low Beta Equal Weight Index, holding 306 well-diversified stocks in its basket with each holding less than 0.60% of assets. Volume is moderate exchanging 60,000 shares in hand on average. The product is skewed toward financials at 21.3%, followed by consumer discretionary (16.2%), industrials (13%), healthcare (10.8%) and consumer staples (10.5%). It charges investors 35 bps in annual fees and is up over 1% since inception. Dividend Dividend paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. Dividend-focused products offer both safety in the form of payouts and stability in the form of mature companies that are less immune to the large swings in stock prices. While several choices are available in the dividend space, First Trust Morningstar Dividend Leaders Index ETF (NYSEARCA: FDL ) looks attractive. With AUM of $1.1 billion, the fund follows the Morningstar Dividend Leaders Index. In total, it holds 96 stocks that have shown the highest dividend consistency and dividend sustainability. The top two firms – Exxon Mobil (NYSE: XOM ) and AT&T (NYSE: T ) – dominate the returns of the fund holding over 9% share each. Other firms hold less than 7.4% of assets. Volume is solid as it exchanges more than 467,000 shares a day on average while expense ratio comes in at 0.45%. FDL surged 83.2% in the past five years. Blend Blend funds consist of a mix of both growth and value stocks and are considered most appropriate in any type of market. This is because these funds harness their momentum in earnings to create a positive bias in the market resulting in rocketing share prices. At the same time, these tap buying opportunities at depressed stock prices hoping for capital appreciation when the stock finally reflects its true market price. In particular, the iShares S&P 100 ETF (NYSEARCA: OEF ) could be an interesting choice as it offers exposure to 102 mega-cap U.S. stocks by tracking the S&P 100 index. It is slightly tilted toward the top firm – Apple (NASDAQ: AAPL ) – at 5.4% while other firms hold no more than 3.81% of assets. As such, the fund has a nice mix of growth, value and blend stocks. About one-fourth of the portfolio is dominated by information technology while health care and financials round off the next two spots, with less than 15% allocation for each. OEF is by far the most popular and liquid choice in the mega cap space with AUM of $4.5 billion and average daily volume of around 1.2 million shares per day. It charges 20 bps in fees and surged 72.5% in the last five years. Diversified A diversified portfolio in the equity world refers to investing in stocks of different companies, securities and industries in order to minimize overall risk and achieve optimal risk-adjusted returns. While there are several ETFs that offer diversification benefits, the Guggenheim S&P Equal Weight ETF (NYSEARCA: RSP ) could be an interesting choice, as it offers almost equal allocation in the stocks of the S&P 500 index and does not allocate a big chunk to any sector. The fund tracks the S&P Equal Weight Index, putting roughly 0.2% in each stock. Financials, consumer discretionary, information technology, industrials and healthcare are the top five sectors accounting for less than 18% share each. The fund has amassed nearly $9 billion in its asset base while sees volume of more than 1.2 million shares a day on average. It charges 40 bps in fees per year from investors and gained 66.5% over the past five years. Original Post

Testing Asset Allocation Results With Random Market Selection

Skill is a slippery concept in finance, courtesy of the shady influence of chance in asset pricing. It’s also an awkward topic in just about every corner of money management because discussing it in detail invariably raises serious doubts about our ability to engineer investment results that are satisfactory much less stellar. But ignored or not, randomness is a factor and perhaps a far more powerful one than generally assumed. In recent posts I’ve explored several facets of how random market behavior can influence portfolio results. In the first installment on the topic we focused on random rebalancing dates. Then we moved on to the results via randomly changing asset weights in asset allocation. Let’s push this testing a step further and build portfolios by randomly selecting asset classes. As before, I’ll use the same 11-fund portfolio that’s globally diversified across key asset classes with a starting date of Dec. 31, 2003. The benchmark strategy is rebalancing the portfolio at the end of each year back to the initial weights, as defined in the table below. Let’s call this our “reasonable” attempt at building an informed asset allocation strategy. For comparison with the element of chance in market pricing, this time the test consists of randomly selecting combinations of asset classes with equal weighting that rebalances the mix back to equal weights every Dec. 31. Note that there are 11 funds in the table above. To test for randomness I’ll use R’s number-crunching prowess to select 1,000 different asset allocation mixes. For instance, one randomly selected portfolio may hold US stocks, US REITs, and commodities and ignore everything else. Another portfolio may hold everything with the lone exception of US junk bonds. (For those who’re interested in the details, I’m selecting time series data via the sample() command with no replacement.) All random portfolios are created as equal weight strategies (if there’s more than one fund) using a start date of Dec. 31, 2003, with results running through yesterday’s close (Apr. 6). The chart below compares the benchmark portfolio (red line) with 1,000 random portfolios as defined above. As you can see, there’s a wide range of outcomes relative to the benchmark portfolio, which increased from 100 to roughly 211 over the test period–i.e., the portfolio more than doubled. By contrast, the best-performing random portfolio surged to more than 300 while the worst performer collapsed to just under 50. Most of the random portfolios, however, dispensed moderately superior or inferior results relative to the benchmark. Let’s review the same data from another perspective by comparing the ending value of the benchmark portfolio (red line) for the sample period with the distribution of ending values for the 1,000 randomly generated strategies (black line). Note that the median outcome for the random portfolios is also included in the chart below (blue line). This is only a toy example, of course, but the results imply that we should be cautious in assigning skill as a key factor for the results of the benchmark portfolio. Dumb luck seems to have played a role too. But let’s not beat ourselves up too much. We can almost certainly avoid the fate of the worst performer among the random strategies by holding a broad set of asset classes. The probability is quite low that everything will fail at the same time, although the events of 2008 pushed that notion to the limit and left more than a few investors with doubts. In any case, the main takeaway is that randomness in market behavior is a factor, and perhaps a dominant one, when it comes to risk and return in the context of portfolio design. That doesn’t mean we should throw up our hands and assume that we have no control over investment outcomes. Rather, the lesson is that a fair amount of what appears to be skill may be something else. In other words, our wetware has a tendency to be confused by randomness–a confusion that we’re all too often eager to facilitate, perhaps unconsciously. Chance can’t be engineered out of the investing process, at least not entirely, but that’s only a minor issue if we’re prepared to deal with this gremlin. The intelligent response is to understand how randomness can influence risk and return and factor that aspect of market behavior into asset allocation analysis and design. Yes, many are fooled by randomness, but that doesn’t have to be every investor’s fate.

3 Mutual Funds To Buy On A Resurgent Chinese Economy

The Chinese economy has been at the root of the broader market malaise since the start of 2016. But, the world’s second largest economy showed signs of improvement in March. China’s factory indicators point to a pickup in the economy supported by greater stability in the yuan and a rise in its stock markets. Pressure on emerging markets including China eased due to the Federal Reserve’s cautious stance to hike rates in the future. Higher rates in the U.S. mostly results in outflows from these markets. China’s service sector also expanded last month, which bodes well for the country’s long-term goal of transforming into a consumer-driven economy. Increase in stimulus measures from Chinese authorities helped the service sector to move north. Given the recovery in manufacturing and services, it will not be unwise to invest in mutual funds that are exposed to the Chinese economy. When you add industrial profits gaining immensely in the first two months of this year and consumer sentiment touching record levels last month, China doesn’t seem to be in a bad proposition. Before we cherry pick some good funds, let’s take a look at the latest data: Manufacturing Expands After eight consecutive months of decline, China’s official manufacturing PMI came in at 50.2 in March. Any reading above 50 indicates expansion. There has also been a marked improvement in production and new orders. The production index went up to 52.3 in March from 50.2 in February, while the new orders index rose to 51.4 from 48.6 in February. A separate indicator, the private Caixin manufacturing PMI, rose to 49.7 in March from 48.0 in February. In spite of being below 50, it turned out to be the index’s highest reading in the past 13 months. Caixin Insight Group Chief Economist He Fan pointed out that “the output and new order categories rose above the neutral 50-point level, indicating that the stimulus policies the government has implemented have begun to take hold.” China-focused funds such as the Oberweis China Opportunities Fund (MUTF: OBCHX ) and the Matthews China Fund (MUTF: MCHFX ) are poised to benefit from this uptick in factory output. These mutual funds have invested in companies such as Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM ), China Mobile Limited (NYSE: CHL ), CNOOC Ltd. (NYSE: CEO ) and Tencent Holdings ( OTCPK:TCEHY ) that are direct beneficiaries of a rise in factory activities. Services Gain Momentum China’s official non-manufacturing PMI rose to 53.8 in March from 52.7 in February. This showed expansion in the service sector, which has become a major source of economic and employment growth in the country. Sub-indices of the non-manufacturing PMI including the new orders index, input price index, and sales price index all improved in March. The non-manufacturing PMI generally includes retail, aviation, technology, telecommunications, financials and construction sectors. Funds such as the AllianzGI China Equity Fund Class A (MUTF: ALQAX ) and the Eaton Vance Greater China Growth Fund Class A (MUTF: EVCGX ) are positioned to immensely benefit as they have significant exposure to the aforementioned sectors. 3 China-Focused Mutual Funds to Invest In Rise in both industrial and service activities in China will surely help its economy to navigate through troubled waters. Moreover, the country’s industrial profits climbed 4.8% to about $119.8 billion in the first two months of this year, according to the National Bureau of Statistics (NBS). Recovery in real estate industry was cited to be the reason behind this increase in industrial profits. NBS analyst He Ping added that the “positive trend was driven in part by quicker product sales of industrial firms and a narrowing in the decline of industrial producer prices.” Consumer sentiment too rose sharply in March. The Westpac MNI China Consumer Sentiment Indicator jumped 6.1% to 118.1 in March, its highest level since Sep. 2015. Banking on this optimism, it will be wise to invest in China focused mutual funds that have gained in the last one-month period. Further, these funds possess strong fundamentals, which will eventually help them continue gaining in the future as well. We have selected three such mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), offer minimum initial investment within $5,000, carry a low expense ratio and have given positive returns in the last four weeks. Matthews China Investor seeks to achieve its investment objective by investing a large portion of its assets in the common and preferred stocks of companies located in China. MCHFX’s 4-week return is 1.9%. Annual expense ratio of 1.14% is lower than the category average of 1.76%. MCHFX has a Zacks Mutual Fund Rank #1. AllianzGI China Equity A seeks to achieve its objective by normally investing a major portion of its assets in equity securities of Chinese companies. ALQAX’s 4-week return is almost 7%. Annual expense ratio of 1.70% is lower than the category average of 1.76%. ALQAX has a Zacks Mutual Fund Rank #2. Invesco Greater China Y (MUTF: AMCYX ) invests the majority of its assets in equity or equity-related instruments issued by companies located in Greater China and in other instruments that have economic characteristics similar to such securities. AMCYX’s 4-week return is 7.1%. Annual expense ratio of 1.63% is lower than the category average of 1.76%. AMCYX has a Zacks Mutual Fund Rank #2. Original Post Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.