Tag Archives: china

Fight Global Warming With These ETFs

Establishing a terror-free world may be the foremost agenda at the international level now, but the global warming issue is equally heated. While so long it was presumed that global warming leads to climate change, causing rising sea levels, drought in one region and flood in other, the latest theory is that this monster can ” cause job losses, recessions and even a tumbling stock market”, according to economists. So, one can easily understand the urgency of controlling pollution and cooling down the globe. In that vein, global leaders assembled in Paris at the COP 21 meet – which is the 21st annual conference of parties – to chalk out an elaborate and comprehensive plan for lowering carbon emissions and moderating the warming of the planet. Efforts to arrest global warming have been constant across individual countries. Now, not only developed economies, but the emerging ones too are pushing themselves to attain this goal. China intends to build a pollution-free environment. As part of this mission, the president of China and U.S. president Barack Obama have recently struck a deal to lessen carbon emissions. The agreement calls for carbon emission reductions by 26% to 28% in the U.S. by 2025. It also includes the first-ever commitment by China to stop emissions from growing by 2030. Notably, China and America are two largest emitters of greenhouse gases . President Obama has always been active in the cause of cleaning up carbon pollution. A proposed Environmental Protection Agency rule seeks to reduce 30% carbon emission from power plants by 2030 from the levels emitted in 2005. At the conference, the Russian president noted that his country has not only averted the rise of greenhouse emissions, but has actually slowed it. Russia targets to curb 70% of greenhouse emissions by 2030 from the levels seen in 1990. At the Paris meet that is under way, global superpowers will also decide on supporting underprivileged countries like Bangladesh and Indonesia to finance the needed reforms they can’t pay for. Investors can also make outsized profits from this awareness on global warming. Several clean energy and low-carbon ETFs have been rolled out to capitalize on the growing need for environment protection and reduce greenhouse gas emissions. Below, we highlight a few ETF options that investors can go “green” with. SPDR MSCI ACWI Low Carbon Target ETF (NYSEARCA: LOWC ) This has become an $87.6 million ETF within just a year of its launch. The 1,277-stock ETF looks to track the stocks from developed and emerging markets that discharge lower carbons. The fund charges only 20 bps in fees. Here too, Apple (NASDAQ: AAPL ) (1.9%) takes the top spot, followed by Microsoft (NASDAQ: MSFT ) (1.17%) and General Electric (NYSE: GE ) (0.85%). The fund is heavy on the U.S., which has half of its total exposure, while Japan (7.9%) and the U.K. (7.1%) take the next two spots. LOWC is down about 0.9% so far this year (as of November 30, 2015). iShares MSCI ACWI Low Carbon Target ETF (NYSEARCA: CRBN ) The 931-stock fund also charges 20 bps in fees a year from investors. The fund has amassed over $217 million in assets since its debut in December 2014. Its exposure is quite similar to LOWC, as Apple (1.92%), Microsoft (1.17%) and General Electric (0.82%) are the top three holdings. The fund’s geographic exposure is also pretty much like that of LOWC. Etho Climate Leadership U.S. ETF (NYSEARCA: ETHO ) This new ETF has a 400-stock portfolio having a carbon emissions profile that is 50-70% lower per dollar invested than a conventional broad-based benchmark. The index studies total greenhouse gas emissions from over 5,000 equities to choose “climate leaders” in each industry. No stock accounts for more than 0.56% of the basket. Netflix (NASDAQ: NFLX ), M&T Bank Corp. (NYSE: MTB ) and Energy Recovery Inc. (NASDAQ: ERII ) are the top three holdings of the fund, which charges 75 bps in fees. Original Post

Top-Ranked ETFs To Tap India’s Growth Story

Finally, a slew of economic reforms including four rate cuts this year have started to pay off and stimulate growth in Asia’s third-largest economy. This is especially true as India picked up momentum with 7.4% growth in the second quarter (ending September). While this is far below the year-ago growth of 8.9%, it is up from 7% recorded in the first quarter and the market expectation of 7.3%, as per Reuters. Bright Spots A major boost to the economy came from solid progress in the manufacturing, mining and service sectors. Agriculture, industrial, automobiles and consumer durables are witnessing strong growth while investments are also showing signs of recovery. Additionally, current account deficit has narrowed and the currency has moved up significantly. Further, lower oil prices and rising consumer spending have added to economic strength. In particular, the current account deficit has narrowed sharply to around 1.3% of GDP in fiscal 2014-2015, below 1.7% in fiscal 2013-2014. Trade deficit in the first seven months of the current fiscal (April-October) contracted to $77.76 billion from $86.26 billion. Though inflation rose to 5% in October from 4.41% in September, it is expected to decline once the festival season ends. The central bank expects inflation to reach 6% by January 2016 and then moderate to 5% by March 2017. Given the positive developments, India has now become the world’s fastest-growing economy, outpacing China, and remains a bright spot given that most emerging economies are struggling to revamp growth. The Reserve Bank of India expects the country’s economy to grow 7.4% annually for fiscal 2015-2016 and the World Bank projects economic growth of 7.5% for the current fiscal year, followed by further acceleration to 7.8% in 2016-17 and 7.9% in 2017-18. The Organization for Economic Co-operation and Development (OECD) also sees robust growth prospects in India compared to the other emerging markets. It expects GDP growth to remain above 7% in the coming years fueled by more structural reforms. India ETFs to Buy Based on a speedy recovery and bright outlook, we recommend investors to buy India ETFs at least for the short term. For interested investors, we have found a number of top-ranked ETFs in the broad emerging Asia-Pacific space targeting India that have a Zacks ETF Rank of 2 or ‘Buy’ rating and are thus expected to outperform in the upcoming months. Among these, the following five funds could be good choices to play in the coming months and have potentially superior weighting methodologies which could allow them to continue leading the emerging Asia-Pacific space in the months ahead. iShares MSCI India ETF (BATS: INDA ) This ETF follows the MSCI India Total Return Index and charges 68 bps in fees per year from investors. Holding 72 stocks in its basket, the fund is highly concentrated on the top two firms – Infosys (NYSE: INFY ) and Housing Development Finance Corp. ( OTC:HSDGY ) – that together make up for 20.2% of total assets. Other firms hold no more than 6.63% share. Further, the product is slightly tilted toward the information technology sector at 21.7% while financials, consumer staples, health care, and consumer discretionary round off the top five. INDA is the largest and popular ETF in this space with AUM of over $3.5 billion and average trading volume of more than 2 million shares a day. The fund is down 7.9% in the year-to-date time frame. WisdomTree India Earnings Fund (NYSEARCA: EPI ) This product tracks the WisdomTree India Earnings Index, holding 238 profitable companies using an earnings-weighted methodology. Reliance Industries and Infosys occupy the top two positions with a combined 17.9% of assets while other firms hold less than 5.8% share. The fund is heavy on financials with one-fourth share, while energy and information technology also get double-digit allocation in the basket. The fund has amassed nearly $1.7 billion and trades in volume of more than 4.8 million shares a day. Expense ratio came in at 0.83%. The fund has lost about 9% over the trailing one year. iShares India 50 ETF (NASDAQ: INDY ) This ETF provides exposure to the largest 53 Indian stocks by tracking the CNX Nifty Index. It is pretty well spread out across components with none of the securities holding more than 7.73% of assets. With respect to sector holdings, financials takes the top spot at 26%, closely followed by information technology (16%), consumer discretionary (11%) and energy (10%). The product has managed assets worth $814.9 million and trades in good volume of nearly 320,000 million shares a day. It is the high cost choice in the space, charging 93 bps. The product shed 8.4% in the trailing one-year period. PowerShares India Portfolio (NYSEARCA: PIN ) This fund offers exposure to the basket of 50 stocks selected from the universe of the largest companies listed on two major Indian exchanges by tracking Indus India. The top two firms – Infosys and Reliance Industries – take double-digit exposure each while the other firms hold no more than 5.6% share. From a sector look, the fund is tilted toward energy and information technology, each accounting for over 20% share, followed by financials (12.1%) and health care (10.8%). The fund has amassed $431.7 million in its asset base and trades in solid volume of around 1.3 million shares a day on average. It charges a higher expense ratio of 85 bps and has lost 7.7% in the year-to-date timeframe. Market Vectors India Small-Cap Fund (NYSEARCA: SCIF ) This fund targets the small cap segment and tracks the Market Vectors India Small-Cap Index. In total, it holds 135 securities in its basket with none making up for more than 3.21% of assets. Here again, financials occupies the top position from a sector look at 28.3% while industrials, consumer discretionary, and information technology round off the next three spots. The fund has so far amassed $203.5 million in its asset base while charging 89 bps in annual fees. Volume is good, exchanging around 105,000 shares in hand a day. Bottom Line Given the current trends and favorable dynamics, India will likely get a solid boost. So a solid play on the country might be a good idea. This is especially true if investors take a closer look at the top-ranked ETFs in the space for excellent exposure and some outperformance in the coming months. Original Post

Which Markets Currently Offer Value And Which Are Best To Avoid?

Summary Analysis of world equity indices can give an idea as to which equity markets provide good investment opportunities and which are best to avoid. Currently, investors should be very alert about investments, particularly on British, Brazilian, Canadian, Mexican and Russian stock exchanges. On the other hand, Chinese H-Shares, South Korean and Vietnamese equities have the capacity for a positive surprise. However, the indisputably best investment opportunity seems to lie in Japan as Abenomics is in full swing. As globalization and new technologies evolve, differences between individual countries are inevitably diminishing. Greater interconnectedness causes local risks to easily spread around the globe and short-term profit opportunities to be quickly seized. However, investors can still find long-term economic moats if they fully understand the underlying timeless principles of equity investing. First of all, they have to realize that the progress of the fundamental value of an investment is strongly correlated with earnings of that investment in the long run. Therefore, investors should focus their attention in this direction and not get fooled by any incidental events. Second, it absolutely crucial to know by heart Warren Buffett’s famous mantra: ,,Price is what you pay, value is what you get.” And third, be aware that proper diversification is a must, otherwise you may face a nervous breakdown in this rapidly changing world. Recently, in light of growing economic and geopolitical tensions, I have been thinking about the geographical allocation of my portfolio. In order to complement broadly discussed issues in financial media, I decided to identify which markets currently offer generally good investment opportunities based on valuation multiples, return on equity and earnings growth analysis of major world equity indices. Price-To-Earnings Looking at the comparison of current PE ratios below, we quickly spot Russian MICEX and several Asian indices among the lower multiples on the left side of the chart and Mexican Mexbol, Brazilian Bovespa and British FTSE on the right side of the chart with higher multiples. Even though PE ratio is widely used valuation metric, it has limitations and hence should be taken with caution. Current Enterprise Value To Trailing Twelve Months EBITDA Especially in the cases of Russia and China, PE indicators may be very misleading since we have heard that the recent Chinese stock frenzy was largely fueled by borrowed money. As a better valuation indicator can then serve EV/EBITDA ratio as it adequately accounts for the level of leverage. Compared to the previous chart, we can clearly observe the shift of Chinese A-Shares index Shanghai Composite to the expensive zone of the chart. Nevertheless, notice that Chinese H-Shares index Hang Seng remained on the relatively cheap side of the chart. Price-To-Book P/B is another popular financial ratio used to gauge market valuation of a stock. However, some assets may be not worth buying even when they trade below their book value. Although Russian equities are boasting with extremely low valuation multiples, they are cheap for good reason. The stiffness of the local business environment and the risk of losing the whole investment due to eventual nationalization of assets are simply too high. Return On Common Equity Moreover, Russian equities together with Brazilian, Canadian and British have the lowest Return on Equity in the given sample. ROE is an important profitability measure and a critical weapon in many value investors’ arsenals. In 1972, Buffett implied that he desires a rate of return on equity of at least 14%. Nine years later, he identified the average rate of return on equity of American companies at 11%. To the last day of October this year, ROE of the S&P 500 totaled 12.5%. 3 Years Earnings CAGR Because of the strong relationship between earnings and market prices in the long-term, one should also assess earnings growth. The following chart captures earnings growth (in %) for the most recent 3 continuous years, ending on the last trading day of October 2015. As you can see, profitability of Russian, Brazilian, British, Canadian and Mexican companies suffered significant losses in recent years, while several Asian indices led the earnings growth. Undoubtedly the most notable rise in earnings was recorded in Japan as the yen heavily depreciated during the given period. Japanese economic miracle 2.0? The fact that the Japanese economy is slowly heating up after long period of deflationary pressures has already been noticed by several renowned economic journals . In order to spur the yet fragile economic recovery, Japan’s Prime Minister Shinzo Abe last week rolled out additional fiscal stimulus. Whether we will witness the second ‘Japanese economic miracle’ can be hardly predicted, but for now, it is quite obvious that Abenomics has considerably changed the course of the third largest world economy. Furthermore, most of Abe’s reforms greatly emphasize the importance of corporate efficiency with a particular focus on ROE. This could help Japanese shares move even higher in the upcoming years. The Bottom Line Probably the best way how to invest in a country’s equity market is through some ETF. The most liquid ETFs with exposure to Japan’s equity market are the iShares MSCI Japan ETF (NYSEARCA: EWJ ) and Japan Hedged Equity Fund (NYSEARCA: DXJ ). Based on the comparison charts above, Chinese H-Shares seem to be surprisingly a good value play even despite the concerns about a slowdown of the Chinese economy. Favorite ETFs consisting of securities listed on the Hong Kong stock exchange include the iShares China Large-Cap ETF (NYSEARCA: FXI ), iShares MSCI China Index Fund (NYSEARCA: MCHI ), SPDR S&P China ETF (NYSEARCA: GXC ) and Guggenheim China Small Cap ETF (NYSEARCA: HAO ). South Korean equities also do not look bad and could be substantially boosted by potential monetary response of local central bank as I wrote about earlier this year . ETFs that could eventually thrive are the iShares MSCI South Korea Capped ETF (NYSEARCA: EWY ), Deutsche X-trackers MSCI South Korea Hedged Equity ETF (NYSEARCA: DBKO ) and the WisdomTree Korea Hedged Equity ETF (NASDAQ: DXKW ). However, not all country ETFs suitably track broad equity indices’ fundamentals. For example, the only ETF providing sole exposure to the Vietnamese equity market – Market Vectors Vietnam ETF (NYSEARCA: VNM ) – mismatches the returns of the national stock market index Vietnam Ho Chi Minh Stock Index (VN Index) by a great deal. Hence, thorough analysis of specific investment instrument should never be neglected as it can easily hamper your original investment objective. With respect to high valuations and weak profitability, the most popular ETFs that should be shorted or avoided by long-only investors are the iShares MSCI United Kingdom ETF (NYSEARCA: EWU ), iShares MSCI Canada ETF (NYSEARCA: EWC ), iShares MSCI Mexico Capped ETF (NYSEARCA: EWW ), Market Vectors Russia ETF (NYSEARCA: RSX ) and iShares MSCI Brazil Capped ETF (NYSEARCA: EWZ ). Note: All presented figures in the charts were exported from Bloomberg Terminal as of 10/30/2015.