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Forget China, Buy These Domestic-Focused ETFs Instead

China has been at the height of volatility throughout this year. While the economy has been reeling under pressure for long given the protracted slowdown in the domestic manufacturing sector, credit crunch and a property market slowdown, its stock market has been riding wild on overvaluation concerns. If this was not enough, the nation shook the global investing arena in mid-August by devaluating its currency by 2% so that it can support its waning exports. As per barrons.com , the Chinese government viewed yuan as an extremely strong currency. Given the looming Fed policy normalization and its depreciating impact on a basket of currencies, any shift in yuan ‘from market expectations’ seems unreasonable. However, such an epic move in the Chinese currency market hit almost every asset class. Though the Chinese government finally gave the currency a lift to soothe the jittery investors, the panic-stricken sentiment is yet to cool down. So, it’s better to look away from China and concentrate on the domestic economy as the U.S. made plenty of sound economic releases lately. Below we highlight three ETFs to benefit from a decently expanding U.S. SPDR S&P Retail (NYSEARCA: XRT ) U.S. retail sales gained ground in July having grown 0.6% on increased purchase of an array of products and services. The data marked considerable improvement from the June reading of flat sales (and in fact 0.3% decline gauged preliminarily). This gives cues of a solidifying U.S. economy since the start of the third quarter as both job gains and consumer spending remain impressive. The trend can be very well played by a host of retail ETFs. Investors can take a look at the largest retail ETF XRT. This fund consists of 104 stocks, the top holdings being Netflix (NASDAQ: NFLX ), Amazon (NASDAQ: AMZN ) and Advance Auto Parts (NYSE: AAP ). The fund’s gross expense ratio is 0.35%. The $1.11 billion-fund has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook. It was up 0.8% in the last five days and 1.6% in the year-to-date frame (as of August 14, 2015) RBA American Industrial Renaissance ETF (NASDAQ: AIRR ) After retail numbers, the U.S. economy gave a sweet surprise to investors by posting a solid industrial output data for July. Industrial production grew at its best clip in eight months in July as auto production jumped. Motor vehicle production skyrocketed 10.6% last month representing the steepest jump since September 2009. Barring autos, manufacturing ticked up 0.1% in July. Overall, July manufacturing growth of 0.6% breezed past the June reading of 0.1% and economists’ expectations (gauged by Reuters ) of 0.3%. In any case, the U.S. Industrial sector is due for a trend reversal in the coming days mainly to reflect the reduced wage differential between developed and emerging economies. Rising wages in emerging countries and sluggish rise in hourly wages in developed nations have gradually been filling the gap. This should benefit the industrial ETF AIRR. The 42 stock-fund is equal-weighted in nature. Comfort Systems USA (NYSE: FIX ), US Ecology (NASDAQ: ECOL ) and Douglas Dynamics (NYSE: PLOW ) are top three holdings of the fund each with over 3% weight. This $56.3 million-ETF charges 70 bps in fees. The fund has lost about 7% so far this year and but was up 1.4% in the last five trading sessions. iShares Russell 2000 Value ETF (NYSEARCA: IWN ) Apart from strong retail and manufacturing data, the producer price index, job and housing data were all upbeat. This makes the case for a domestically-focused equity play stronger. Investors should note that small-cap stocks better reflect the U.S. economic growth as these are less exposed to foreign economies. Moreover, a stronger greenback presently makes large-cap U.S. stocks a little vulnerable; while small-caps are best-suited for this type of scenario. Investors can benefit from this scenario by investing in small-cap value ETF IWN. Notably, a sudden lift in value quotient in the market thanks to the rout caused by the Chinese currency episode makes a value ETF a better choice than the growth one. The 1,316 stocks-fund has about $5.80 billion in AUM. No stock takes more than 0.5% weight in the fund, suggesting low concentration risk. Sector wise, this ETF is heavy on financials (42.7%) followed by industrials (12.2%) and consumer discretionary (10.8%). The fund charges 25 bps in fees and has a Zacks ETF Rank #3 (Hold). In the last five trading sessions (as of August 14, 2015), the fund added about 1%; while it is down over 3% so far this year. Original Post

Malaysia ETF Hits New 52-Week Low

For investors seeking to know about the painful areas of investing, the iShares MSCI Malaysia ETF (NYSEARCA: EWM ) is probably on the radar now. The fund just hit a 52-week low, and shares of EWM are down roughly 36.6% from their 52-week high price of $16.32. Are more pains in store for this ETF? Let’s take a quick look at the fund and its near-term outlook to get a better idea of where it might be headed. EWM in Focus EWM looks to track the performance of the Malaysian equity market. The fund has a focus on large caps, with key holdings in the Financials, Industrials, Utilities and Telecom sectors. EWM charges investors 48 basis points a year in fees, and has top holdings in Public Bank, Malayan Banking and Tenaga Nasional BHD (see all Asia-Pacific (Emerging) ETFs here ). Why the Move? The Malaysian equity market has been an area to watch lately, as its neighboring country China devalued its currency earlier last week, and Fed policy normalization has never looked so strong. Also, a falling oil price marred the stocks of oil-rich Malaysia, which happens to be one of the largest Asian crude exporters. Political crisis is another cause of concern for the country. On the other hand, China’s currency devaluation hurt its competiveness as an exporter. This, coupled with a strong U.S. dollar amid the looming Fed rate hike sent Malaysia’s currency ringgit to a new 17-year low last week. This resulted in depletion of Malaysia’s foreign exchange reserves, and in turn, soured investors’ mood toward Malaysian investing. More Pains Ahead? Currently, EWM has a Zacks ETF Rank #3 (Hold), so it’s hard to make out its future returns one way or another. However, the fund has a negative-weighted alpha of 38.21 . A negative-weighted alpha hints at more pain. So, for those who are currently not into the Malaysian ETF, it is wise to stay on the sidelines and wait for better entry points. Things will likely take some more time to stabilize. Original Post Share this article with a colleague

Revisiting Eurozone ETFs As Economic Growth Falters

After a solid start to 2015, growth in the 19-member Euro zone economy lost momentum due to the Greek debt crisis and deterioration in many emerging market economies as commodities saw a slump and China witnessed a turmoil. The economy grew just 0.3% in the second quarter, down from a two-year record growth of 0.4% in the first quarter and well below the market expectation. This suggests that the Euro zone continues to lag recovery in the U.S., which recorded 2.3% growth in the same period. France and Italy – representing 40% of the currency bloc’s growth – were the major setbacks to the region’s growth in the last quarter. This is especially true, as France recorded zero growth in the second quarter after 0.7% in the first and Italy’s growth slowed to 0.2% from 0.3%. On the positive side, Spain once again turned out to be the outperformer with its quarterly growth increasing from 0.9% in the first quarter to 1% in the second. This was the highest growth rate among the Euro zone nations. Growth in Germany accelerated to 0.4% from 0.3%, while Greece unexpectedly grew 3.1% in the last quarter from 0.1% in the first quarter. Outlook Remains Bright It can be said that the Euro zone has shown strong resilience in a tough environment, which was disturbed by Greece, China and the commodity turmoil. The outlook for the region remains solid heading into the second half of the year given the numerous economic tailwinds that the Euro zone is enjoying. These include ultra-cheap money flows, a boost to liquidity from the European Central Bank’s (ECB) quantitative easing program, a weaker euro and lower oil prices. Improving economic and business activity as well as growing consumer confidence is fueling growth in the 19-member economy. The Euro zone successfully emerged out of the four straight months of deflationary spiral in April and inflation is above the zero level. Notably, annual inflation was 0.2% in July. Further, unemployment across the Euro zone has been falling and remained steady at a three-year low of 11.1% as of June. Given several monetary tools in place, the Euro zone is expected to show strength in the coming months providing a boost to the stocks and ETFs in the region. As a result, we have taken a closer look at some of the ETFs that have the largest exposure to the Euro zone economies. These funds have generated decent returns so far in the year and could continue to do so. iShares MSCI EMU Index Fund (NYSEARCA: EZU ) This product provides exposure to the EMU member countries (those European Union members that use the Euro as currency) by tracking the MSCI EMU index. EZU is one of the most popular ETFs in the broader European space with AUM of nearly $10.9 billion and average daily volume of roughly 6.5 million shares. It charges investors 0.48% in annual fees. The fund holds about 243 securities in its basket with none holding more than 3.15% share. The ETF is a large cap centric fund as about 82% of the portfolio is concentrated on this market cap level. The product has a definite tilt toward financials at 24%, followed by consumer discretionary (14.4%), industrials (13.1%) and consumer staples (10.5%). From a country look, France and Germany take the largest share in the basket with 32.4% and 29.2%, respectively, while Spain, the Netherlands and Italy round off the top five. The fund has returned about 7.1% so far this year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. SPDR EURO STOXX 50 ETF (NYSEARCA: FEZ ) This fund follows EURO STOXX 50 Index, which measures the performance of some of the largest companies across the components of the 20 EURO STOXX Supersector Indexes. The fund appears rich with AUM of nearly $4.7 billion, and average daily volume of more than 2.5 million shares. Expense ratio came in at 0.29%. Holding 53 securities in its basket, the product is pretty well spread out across components with no firm making up for more than 5.09% of assets. The ETF is skewed toward financials, as it takes about more than one-fourth of the total assets, while the other sectors receive modest exposure. In terms of country allocation, France and Germany are leading with 36.2% and 30.6% share, respectively, followed by Spain (12.7%), Italy (8.0%), the Netherlands (7.6%), Belgium (3.7%) and Finland (1%). The fund is up nearly 5.6% in the year-to-date time frame and has a Zacks ETF Rank of 3 with a Medium risk outlook. SPDR STOXX Europe 50 ETF (NYSEARCA: FEU ) This ETF is quite similar to FEZ having amassed $280 million in its asset base and trading in volume of less than 74,000 shares per day. It charges 29 bps in annual fees and holds 56 stocks in its basket. While the fund tracks the same index, it is slightly different from FEZ in terms of sector and country holdings. Here, financials and health care take the top two spots in terms of sectors with over 24% share each while consumer staples and energy round off the top four with double-digit exposure each. Country weights for the top three are United Kingdom (35.4%), Switzerland (23.1%) and Germany (14.7%). The product is up 6.1% so far this year and has a Zacks ETF Rank of 3 with a Medium risk outlook. iShares Currency Hedged MSCI EMU ETF (NYSEARCA: HEZU ) For investors looking to manage currency risk while remaining invested in the Euro zone stocks, HEZU might be a good option. The fund follows the MSCI EMU 100% USD Hedged Index and is a play on the popular unhedged fund ( EZU ) with a hedge to strip out the euro currency exposure. The fund holds 263 well-diversified securities in its basket dominated by financials (24.4%) and followed by consumer discretionary (14.7%), industrials (13.3%) and consumer staples (10.7%). The ETF has amassed $1.8 billion in its asset base since its debut a year ago and trades in good volumes of more than 941,000 shares a day. The fund charges 50 bps in annual fees from investors and has delivered impressive returns of over 15% so far this year. It has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating. Bottom Line Given the encouraging trend, Euro zone will likely get a boost in the coming months. So investors could jump into this space and could ride out the strength with any of the above-mentioned ETFs. Original Post