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November ETF Asset Report

The month of November was all about heightened Fed lift-off bets and geo-political flare-ups on the Paris terror attacks. While the first confirms the U.S. growth momentum, more so after the upward revision in the Q3 GDP numbers (from 1.5% to 2.1%), the second points to lingering geopolitical threats in the coming months. Investors seem to have reacted along the headlines. At least, the asset flow pattern says that. Let us explain the trend below. ETF Asset Gainers U.S. After nagging speculations on the rate hike timeline, direct hints from the Fed this time were well digested by the market. Investors appeared to have paid more attention to the improving economy than to the fears that cheap money will now call it quits. As a result, several U.S. ETFs found a place in the top-10 asset gatherers’ list with the large-cap U.S. ETF iShares Russell 1000 ETF (NYSEARCA: IWB ) being at the helm. The fund added over $2.6 billion in assets in the month. This propelled its AUM to $15.1 billion. Three other U.S. ETFs, small-cap iShares Russell 2000 ETF (NYSEARCA: IWM ), large-cap blend Vanguard S&P 500 ETF (NYSEARCA: VOO ) and large-cap growth ETF iShares Russell 1000 Growth (NYSEARCA: IWF ) added about $2.26 billion, over $811 million and over $717 million, respectively, to their asset base. Total Bond Market Probably to spread out the risk and earn returns in the face of an impending rate hike, investors opted for the total bond market approach. This increased investors’ lure for iShares Core U.S. Aggregate Bond (NYSEARCA: AGG ) which has exposure to both government and corporate bonds. Maturity-wise, the fund follows a diversified approach. AGG hauled in about $2.45 billion to exit the month with about $30 billion in assets. Developed Markets The wave of easy money polices across the international arena, be it in Europe or the Asia-Pacific, has brightened the appeal for the developed market. In fact, the Euro zone is mulling over further policy easing if deflationary risks shoot up. This is why funds like iShares Core MSCI EAFE (NYSEARCA: IEFA ) and iShares MSCI EAFE (NYSEARCA: EFA ) have attracted about $1.53 billion and $1.02 billion, respectively. Another ETF Vanguard FTSE Developed Markets ETF (NYSEARCA: VEA ) also added about $755.7 million in assets. ETF Asset Losers Short-term U.S. Bonds The Fed’s plans to raise the benchmark interest rates in December after almost a decade, will no doubt hurt the short-term bond ETFs the most. As expected, investors rushed to leave the zone and as much as $1.36 billion in assets gushed out of the short-term bond ETF iShares 1-3 Year Treasury Bond ETF (NYSEARCA: SHY ). Another ETF SPDR Barclays 1-3 Month T-Bill (NYSEARCA: BIL ) lost $552.8 million in assets. Gold As the Fed is gearing up for policy tightening, the greenback has gained strength and is weighing on gold. Prices of gold slipped to the six-year low in the month. Even a safe haven appeal in the wake of the terrorist attacks in several parts of the globe in November could not hold back investors from fleeing the yellow metal. SPDR Gold ETF (NYSEARCA: GLD ) had to sacrifice about $1.3 billion in net assets. High Yield As the yield on the benchmark 10-year U.S. government note rose to 2.23% (as of November 25, 2015) from 2.20% at the start of the month, investors started to dump all high-yield bond ETFs. Junk bond ETF SPDR Barclays High Yield Bond (NYSEARCA: JNK ) witnessed outflows of about $1.02 billion and took the third spot. Original post

Mixed Views On Emerging Markets: Funds To Buy And Sell

There are mixed views on emerging markets now. According to a report from Bank of America Merrill Lynch, fund managers have mostly been pessimistic about emerging-market equities since 2001. On the other hand, some strategists at leading banks and financial companies believe that securities from emerging markets may have hit their lowest point. Amid the contradictory opinions, certain market experts are of the view that investors often invest in emerging market funds too late or they stay invested for too long. So, while buying certain favourably ranked emerging market funds at a discount now should be a prudent move, investors may also dump certain Sell-rated funds that their portfolio will not miss. The Pessimism According to Bank of America Merrill Lynch’s monthly survey, fund managers are the most underweight on emerging-market equities against developed-market equities since the survey began in 2001. While post 2009, fund managers’ relative positioning had jumped and stayed mostly in the green till 2013, the sentiment soured after that. In 2014, the sentiment dropped to a new low before rebounding in late 2014 and early 2015. However, the sentiment is the most pessimistic now. The bearish outlook is concentrated mostly on Asia. Investors are apprehensive about the slowdown in China’s economy while the U.S. central bank may hike rates. The International Monetary Fund (IMF) meeting on Nov 30 is also crucial. Investors fear further devaluation in the Chinese currency but not before IMF adds the yuan to its Special Drawing Rights basket of currencies. And if this happens, Bank of America strategists fear that the markets will move even lower. Goldman Sachs projects that yuan traded at offshore rate may weaken by 2.5% to 3% against the dollar in the next 2 months. Eventually, the devaluation of yuan may impact other emerging-market currencies, as they are often influenced by the monetary policies in the world’s second-largest economy, China. The Contrarian View Meanwhile, market watchers at a number of leading banks and financial institutions have said that they believe asset values for emerging markets have hit a rock bottom. In fact, the views come from the likes of Bank of America, Goldman Sachs and Barclays PLC. Following three continuous years of losses, markets and assets from developing nations are poised for a rebound. According to Morningstar, in the 12 months ended October, emerging-market stock funds traded in the US dropped an average 13.4%. A major indicator of valuations for emerging markets is the MSCI Emerging Markets Index, which is down 30% from the high achieved in 2011. The index is currently trading at approximately 12x its earnings estimates. Additionally, the index’s valuation is nearly three times lower than the S&P 500’s current figure. This is why analysts at Barclays believe that prices of emerging market securities are significantly lower than their intrinsic value. Over the six-month period since the last three American market tightening cycles began, global markets have gained an average 15%. Strategists are also hopeful that emerging markets might rebound in 2016. They say that it might not mirror the “roaring”2000s, but 2016 might be the year the emerging markets “find their feet”. 2 Emerging Market Funds to Buy As mentioned earlier, investors should not miss the buying opportunity. An uptrend in emerging economies brings good tidings for investment instruments from these countries. Many of them currently have reasonable valuations compared to their historical averages. Below we present 2 International Bond – Emerging Market mutual funds that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund. Fidelity New Markets Income (MUTF: FNMIX ) fund invests the lion’s share of its assets in emerging markets or makes other investments that are economically linked to emerging markets that have stock markets as defined by MSCI. These emerging market countries also may also be the ones with low- to middle-income as classified by the World Bank. FNMIX currently carries a Zacks Mutual Fund Rank #1. FSRPX has gained respectively 3.7% and 0.2% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are 1.2% and 5.4%, respectively. Annual expense ratio of 0.84% is lower than the category average of 1.16%. Goldman Sachs Emerging Market Debt A (MUTF: GSDAX ) predominantly invests in emerging market debt securities. These instruments may be issued by governments as well as corporate entities. To gain exposure to certain emerging economies, GSDAX may use structured securities or derivatives among others. GSDAX currently carries a Zacks Mutual Fund Rank #2. GSDAX has gained respectively 2.8% and 0.5% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are 1.5% and 5.1%, respectively. Annual expense ratio of 1.24% is higher than the category average of 1.16%. 2 Emerging Market Funds to Sell It is also important to not stay invested in certain underperforming funds. For investors not ready to bet on the emerging markets now or for investors who have lost plenty staying invested in some emerging market funds, below we present 2 funds that either carry a Zacks Mutual Fund Rank #4 (Sell) or Zacks Mutual Fund Rank #5 (Strong Sell). Eaton Vance Emerging Markets Local Income A (MUTF: EEIAX ) gains exposure to the emerging economies by investing in securities and derivatives among other instruments. Bulk of EEIAX’s assets are invested in securities denominated in currencies of emerging market countries, fixed income instruments that are issued by emerging market entities, and in emerging-market denominated derivative instruments. EEIAX currently carries a Zacks Mutual Fund Rank #5. EEIAX has lost respectively 10.6% and 16.5% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are negative 7.2% and negative 2.5%, respectively. Annual expense ratio of 1.25% is higher than the category average of 1.16%. PIMCO Emerging Markets Currency A (MUTF: PLMAX ) invests most of its assets in currencies of emerging market countries or in fixed income instruments denominated by these currencies. PLMAX currently carries a Zacks Mutual Fund Rank #4. PLMAX has lost respectively 5.2% and 9.7% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are negative 4.7% and negative 2.4%, respectively. Annual expense ratio of 1.25% is lower than the category average of 1.58%. Original post