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Is The Recovery Of GLD Underway?

Summary Shares of GLD have bounced back in the past couple of weeks. The recent depreciation of the U.S. dollar has helped pull up the price of GLD. Will the recent rally of GLD continue? Shares of the SPDR Gold Trust ETF (NYSEARCA: GLD ) have rallied in the past couple of weeks, following the disappointing non-farm payroll market and a weaker U.S. dollar. The gold market isn’t out of the woods just yet – even though some analysts already suggest the recovery of gold is underway – as the Fed is still on course to raise rates in the coming months, and the U.S. dollar may start to climb back up if future U.S. economic reports such as JOLTS and consumer sentiment show better-than-expected results. But for now, the gold market benefits from the current market conditions. The U.S. dollar isn’t picking up, for now The appreciation of the U.S. dollar during the first few months of 2015 came to halt. Although the gold market saw short-term gains during the first half of the year, it dropped between April and July. Since then, however, gold has remained relatively flat, as the U.S. dollar also remained relatively (compared to the beginning of the year) stable. (click to enlarge) (Source: FRED ) The hesitation of the FOMC in raising rates, and the lower-than-expected growth in non-farm payroll report helped pull up the price of GLD. The minutes of the last FOMC meeting also didn’t offer much input as to when the Fed plans to raise rates, or any new insight behind the Fed’s deliberations. But the main issue will remain the progress of the U.S. economy, including when it comes to inflation and labor. As for labor, the JOLTS report will be released this week, and may boost the U.S. dollar if it shows better-than-expected results. It may offset the adverse impact the NFP report had on the U.S. dollar. Nonetheless, the market isn’t convinced that the Fed is ready to raise rates. As of the end of the week, the implied probabilities of an October rate hike are below 10%, while in December, the odds are still nearly unchanged at 37%. And these odds suggest the market isn’t convinced that the Fed will raise rates. And in a recent interview, Federal Reserve Vice Chairman Stanley Fischer opened the door for a scenario in which the Fed may opt out from raising rates this year, as opposed to repeated claims that the Fed, including Chair Yellen , aims to raise rates this year. He stated that a rate hike is expected, but isn’t a commitment. As long as the Fed isn’t raising rates, the U.S. dollar may remain flat or even decline against other currencies, which will keep fueling the rally of GLD. But GLD isn’t the only way people invest in the yellow metal – some also consider buying coins. And the demand for coins seems to have gone up in previous months. Higher demand for coins? The U.S. mint experienced a rise in gold coin sales back in July-September. Since then, however, sales have gone down and are at among the lowest levels for this year, as presented in the following chart. (Data Source: U.S. Mint ) This is only a signal as to the changes in the physical demand for gold for investment purposes in the U.S. So far, the slow fall in gold prices in the past few months may have fueled a rise in demand for gold during the summer. I have pointed out in a previous article that total demand for gold declined in the second quarter. So even though this recent finding may signal (albeit it should be taken with a grain of salt, considering it’s not a complete account of the changes in the demand for gold coins on a global level – less than 10%) a modest gain in demand for coins during the third quarter, it’s still too early to determine if this means the gold market is tightening, and how this could affect the price of gold in general and GLD in particular. Final note The recent rally in GLD may not last long, especially if the U.S. reports including JOLTS and consumer sentiment show promising results. If not, the recent rally of GLD is likely to continue until other central banks boost their QE programs (ECB or BOJ), which will drive up the U.S. dollar, or until the Fed starts to drop stronger hints as to timing of the historic rate hike, which seems less likely to occur this year. As long as the Fed keeps pushing the rate hike to a later date, the price of GLD will keep seeing modest relief. For more please see: ” Gold and Inflation ”

5 Bond ETFs Gaining Popularity In October

The timing of the first U.S. interest rate hike in almost a decade has been unsettling the financial world for long. In all FOMC meetings so far this year, the Fed has kept its rates unchanged and hinted toward a slower rate hike path when it is warranted. The September Fed meeting was also no different, suggesting cheap money flows for longer than expected as China and global slowdown concerns are weighing on domestic growth. The dismal jobs report for September and the latest Fed minutes confirmed this trend, further dampening the prospect of an interest rates hike for later this year or early next year. This has rekindled investors’ interest in the bond space, as lower rates will push the yields down, boosting the prices for the bonds. Added to the popularity was the global stock market instability, which wiped out nearly $11 trillion from the global markets in Q3. Last week, the International Monetary Fund (IMF) cut its global growth forecasts for the second time this year and warned of a rising risk of global recession. The agency now projects the global economy to grow by 3.1% for this year and 3.6% for the next as compared to the previous forecasts of 3.3% and 3.8%, respectively. All these factors compelled investors to flock to the bond funds. As a result, U.S. fixed income ETFs were winners last week (ending October 8), gathering nearly $6 billion in total assets, as per ETF.com . Below, we have highlighted the five bond ETFs that have seen the highest inflows in the initial days of the fourth quarter. SPDR Barclays Capital High Yield Bond ETF (NYSEARCA: JNK ) This product accumulated about $1.8 billion in its asset base in the first few trading sessions of October, propelling its AUM to $10.8 billion. It offers exposure to the high-yield corner of the bond ETF world and follows the Barclays High Yield Very Liquid Index. The fund holds 783 low-rated (BB and lower) corporate bonds with average maturity of 6.12 years and modified adjusted duration of 4.32 years. Expense ratio came in at 0.40% while volume is robust as the fund exchanges more than 8.8 million shares a day. The ETF gained 2.1% so far this month and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook. iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA: LQD ) This fund targets the corporate bond world by tracking the Markit iBoxx USD Liquid Investment Grade Index and holds 1,462 securities in the basket. It pulled in nearly $938 million in capital to start October, propelling the total asset base to $23.1 billion. It focuses on high-quality bonds (BBB and plus) with about 66% going to the mid-term bonds and 34% to the long-duration bonds. As a result, it has a relatively higher default risk and interest rate risk, with an average maturity of 12.25 years and an effective duration of 8.02 years. Expense ratio came in at 0.15%. The product was up 0.2% in the same time frame and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook. iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ) This fund provides targeted exposure to mid-term securities and tracks the Barclays U.S. 7-10 Year Treasury Bond Index. Holding a small basket of 22 securities, it focuses on top-rated bonds, suggesting a lower default risk. The fund has an average maturity of 8.51 years and an effective duration of 7.64 years. IEF is by far the largest and most popular ETF in the bond space with AUM of around $9.7 billion and average daily volume of about 1.7 million shares. It has gathered nearly $841 million in October so far. Additionally, the ETF charges a lower fee of just 15 bps per year. It is down 0.4% and has a Zacks ETF Rank of 3 with a High risk outlook. iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG ) This is the largest and most liquid fund in the high-yield bond space with AUM of over $13.5 billion and average daily volume of around 7.3 million. The product has accumulated about $687 million in assets in the past few trading sessions while charging 50 bps in fees per year from investors. The fund tracks the iBoxx $ Liquid High Yield Index and holds 1,014 securities in the basket. Effective duration and average maturity came in at 4.20 and 5.11 years, respectively. In terms of credit quality, the fund focuses on lower quality, non-investment grade bonds, allocating about 49% of the portfolio to bonds rated ‘B’ or lower. The ETF is up 2.8% and has a Zacks ETF Rank of 4 with a High risk outlook. SPDR Barclays 1-3 Month T-Bill ETF (NYSEARCA: BIL ) This product saw substantial inflows of over $315 million in the same period. It offers exposure to the short end of the yield curve by tracking the Barclays 1-3 Month U.S. Treasury Bill Index. It holds 10 securities in the basket with an average maturity and an effective duration of 0.15 year each. The fund has amassed $3.4 billion in its total asset base while it trades in solid volume of 1.1 million shares. It charges 14 bps in annual fees and has delivered flat returns so far in the fourth quarter. BIL has a Zacks ETF Rank of 3 with a Low risk outlook. Bottom Line These bond ETFs are getting a lot of attention from investors since the start of the final quarter of 2015. The trend is likely to continue as long as interest rates are at low levels and global worries weigh on stock returns. Original Post

Solar Energy ETFs – Decent Way To Stay Invested In The Volatile Solar Industry

Summary The top holdings in the portfolio are good companies with decent performances. The ETFs have considerably reduced their Chinese market exposure to tide the current downturn. The solar industry is set to grow at a rapid pace. I was sceptical about investing in solar ETFs earlier, mainly because of the fact that they included Hanergy Thin Film Power Group Ltd. (OTC: HNGSF ) among their top holdings. Since the Hanergy bubble has burst, the two ETFs have now minimized their exposure in that stock. The Guggenheim Solar ETF (NYSEARCA: TAN ) and the Market Vector ETF (NYSEARCA: KWT ) have also considerably reduced their exposure to Chinese stocks to avoid volatility. I think it should be a good opportunity to invest in these ETFs now, as they have increased their exposure to top quality solar stocks. The solar industry being a relatively new industry sees rapid changes in business models and technology – top companies (e.g. Hanwha Q Cells (NASDAQ: HQCL ) ) can go bankrupt in a matter of months due to changes in the supply chain/technology. Solar ETFs are a better way for retail investors to stay invested in the volatile solar industry to avoid company specific risks. They can also take advantage of the long term double digit secular growth of the industry using these ETFs. Top Holdings Then & Now – Portfolio looks decent now TAN Top Holdings As on 24th Apr-2015 29th Sep-2015 Hanergy Thin Film Power Group 11.45% – SunEdison Inc. (NYSE: SUNE ) 8.43% 5.15% First Solar Inc. (NASDAQ: FSLR ) 6.99% 8.06% GCL-Poly Energy Holdings LTD (OTCPK: GCPEF ) 6.45% 7.52% SolarCity Corp. (NASDAQ: SCTY ) 6.27% 7.01% SunPower Corp. (NASDAQ: SPWR ) 4.56% 5.01% Terraform Power Inc – A (NASDAQ: TERP ) 4.39% 4.27% Canadian Solar Inc. (NASDAQ: CSIQ ) 4.35% 4.22% Xinyi Solar Holdings LTD. 4.17% 5.88% Trina Solar LTD. (NYSE: TSL ) 3.93% 4.86% SMA Solar Technology (OTCPK: SMTGF ) – 4.19% Source: Guggenheim Solar ETF KWT Top Holdings As on 24th Apr-2015 31st Aug-2015 Hanergy Thin Film Power Group 8.16% – SunEdison Inc. 8.03% 4.06% First Solar Inc. 6.85% 8.90% SolarCity Corp. 6.46% 8.84% GCL-Poly Energy Holdings LTD 6.13% 5.66% Terraform Power Inc. – A 5.62% 6.91 Shunfeng International Clean Energy Ltd (OTCPK: SHUNF ) 5.32% – Trina Solar LTD. 4.71% 4.53% SunPower Corp. 4.65% 4.97% Canadian Solar Inc. 4.56% 3.72% Sino-American Silicon Products Inc. 4.11% – Xinyi Solar Holdings LTD. 3.10% 5.35% SMA Solar Technology – 4.85% Source: Van Eck Global Both the ETFs have removed Hanergy Thin Film from their respective portfolios. This is in line with my thoughts expressed earlier, that when the Hanergy bubble bursts – the ETFs will also suffer. Reducing exposure in the Chinese market makes sense now The ETFs had a considerable exposure in the Chinese market which made them vulnerable to low returns at the time of crisis. However, both the ETFs have reduced a considerable amount of their exposure in the Chinese market. KWT’s exposure in the Chinese market stands at 31% from 38% previously. For TAN the Chinese presence has been reduced from 48% previously to ~38% currently. All this shows that the ETFs are trying to reduce the volatility in their returns. Though the performance was slightly below the broader Dow Jones index, it was better than most of the individual stock returns. (click to enlarge) As on 12 th Oct 2015 Source: Google Finance YTD Performance of some of the stocks as on 12th Oct 2015 SPWR -2.9% SCTY -9.2% SUNE -52% TERP -34% CSIQ -10.7% Performance was better than individual Stock returns Investors look to invest in ETFs to guard themselves from the volatility in the sector. The solar industry is volatile and is facing a downturn currently. Other than Trina Solar and First Solar stock who returned ~22% and 15% YTD (as on 12th October 2015), other stocks have been battered. Both these ETFs have also suffered due to the recent selloff seen in the broader energy market. ETFs average the returns from all the stocks for investors. The investor will not unduly suffer if his one solar stock holding is punished. The Guggenheim Solar ETF has a total asset base of $225 million with an expense ratio of 0.7% and Market Vector ETF has a total asset base of $15 million with an expense ratio of 0.65%. Solar Energy has have a very bright future Though the Chinese stock market looks weak at the current time, the Chinese solar industry has a bright solar future. It is expected that China will be the largest solar market globally. The country is expecting to install 18 GW of new capacity this year. China and other major carbon emitters such as India and Europe have to considerably reduce its carbon emissions as part of the INDC. Solar energy is expected to be the biggest source of capacity expansion among all energy sources in the next 20 years, as per major forecaster (Bloomberg and others). Global solar installation are expected to increase by 40% y/y to 55 GW and continue to increase in the double digit range in the long term as well. USA solar energy is booming as well, with 22.7 GW of total installed capacity by the end of Q2’15. Downside Risks Staying invested in the solar industry through an ETF makes more sense if the investor is not very well acquainted with the market trends. However for someone who follows the industry closely, I think a better way to stay invested should be through individual stock holdings. If an investor believes in any particular stock(s) and stays invested, he should end up making more money than the ETF. For example, Trina Solar stock was up ~22% during the time the ETFs were seeing their values decline. Conclusion Solar ETFs have also been hurt by the decline in the energy sector, even though the industry is seeing strong growth and well run companies are showing good profitability and revenue growth. Solar ETFs were a bad bet earlier because of the heavy weighting being given to highly risky companies. But they have become a better investment, with the pruning of such stocks from their portfolios. The solar industry is an extremely dynamic and volatile one. It carries both high risks and rewards and for normal investors ETFs may be a good choice to take advantage of the long term secular growth of the industry. They represent a good investment now, as they have fallen unduly due to the oil price decline. Currently, both TAN and KWT represent good investment options in my view.