Tag Archives: china

Lipper U.S. Fund Flows: Gains For All 4 Fund Groups

By Patrick Keon Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) had aggregate net inflows of $14.0 billion for the fund-flows week ended Wednesday, October 14. This activity marked the second consecutive week of overall positive flows; the groups took in $11.8 billion of net new money the prior week. The wealth was spread out this past week, with all four fund macro-groups experiencing positive net flows: money market funds (+$7.9 billion) led the pack, followed by taxable bond funds (+$3.1 billion) and equity funds (+$2.5 billion), while municipal bond funds contributed $521 million. The downturn at the end of the week was triggered by weak economic data from both domestic and foreign sources. Reports out of China again raised global growth concerns. China’s economic growth for Q3 2015 was forecasted to be 6.8%, the lowest level since 2009, giving investors concerns as to whether the slump in the world’s second largest economy is worse than originally thought. On the home front, corporate earnings and a gloomy picture of U.S. growth weighed on the markets. Wal-Mart (NYSE: WMT ) issued a much weaker-than-expected profit forecast, which-coupled with the release of a weak U.S. retail sales report-resulted in a sell-off in the retail sector. The Federal Reserve’s Beige Book pointed toward a continued slowdown in U.S. growth. With economic data continuing to point to weakness and the inflation rate sitting well below the target rate of 2.0%, it seems the likelihood of the Fed raising interest rates in 2015 is getting slim. The week’s positive flows into money market funds (+$7.9 billion) marks the fourth consecutive week of net inflows for the group over which time they have taken in almost $42 billion. Institutional money market funds were responsible for the lion’s share of the positive flows last week, taking in $8.2 billion in net new money this past week. ETFs (+4.7 billion) were responsible for all of the equity net inflows for the week, while equity mutual funds saw $2.2 billion leave their coffers. The Powershares QQQ Trust ETF ( QQQ , +$1.3 billion ) and the iShares Russell 2000 ETF ( IWM , +$911 million ) had the two largest net inflows on the ETF side, while for mutual funds both domestic (-$1.6 billion) and nondomestic (-$700 million) equity funds experienced net outflows. ETFs (+$2.6 billion) contributed the majority of the net new money for taxable bond funds, while taxable bond mutual funds chipped in almost $500 million. The iShares iBoxx $ High Yield Corporate Bond ETF ( HYG , +$616 million ) and the iShares iBoxx $ Investment Grade Corporate Bond ETF ( LQD , +$608 million ) were the two largest contributors to the positive flows for ETFs. Lipper’s High Yield Funds (+$378 million) and U.S. Mortgage Funds (+$326 million) classifications had the two largest increases for mutual funds. Municipal bond mutual funds took in $482 million of new money for their second straight week of net inflows. The majority of these inflows (+$319 million) came from funds in Lipper’s national municipal bond fund groups.

Emerging Market Asset Flow Rebounds: ETFs In Focus

Emerging market equities seem to have gained some traction. The latest data from Bloomberg showed that emerging market ETFs experienced near $1 billion in net asset inflow last week ended October 9, driven mainly by movements in India, Mexico and Russia. This was a sharp rebound from the prior week ended October 2, when outflows from these funds more than doubled from the week-ago level. Inflows into emerging-market ETFs totaled $936 million last week, more than offsetting the $828 million in outflows over the previous two weeks. Stock funds gathered $982.4 million in assets but bond funds exhaled $46.4 million. Notably, the MSCI Emerging Markets Index rose 6.9% last week, the fastest pace since the week ended December 2, 2011. Per Bloomberg, India witnessed the biggest inflow with collections of $150.9 million, compared with an outflow of $25.4 million in the prior week. Stock funds accumulated $151.7 million while bond funds moved out $0.8 million. The huge inflow in Indian ETFs can be attributed to the Reserve Bank of India’s move to cut its key interest rate by 50 basis points (bps) to 6.75% in a bid to boost economic activity as well as the IMF forecast of India retaining the world’s fastest growing economy status. According to IMF, the Indian economy is expected to grow 7.3% in 2015, compared with 6.8% growth in China and 2.6% in the U.S. Mexico experienced the second biggest inflow. Investors added $135.9 million to this country’s ETFs last week, as compared to $35.3 million of redemptions in the previous week. Stock funds gained $141.4 million, while bond funds fell $5.5 million in the week. Latin America’s second biggest economy has been recovering from the oil price crash. Domestic strength, improving U.S. economy, decreasing unemployment rate and subdued inflation bode well for the Mexican economy. Russia recorded the third biggest movement with $133.9 million in inflows. Stock funds added $135.7 million while bond funds saw an outflow of $1.7 million last week. The surge in Russian ETFs can be attributed to the rebound in oil price and stabilization of the ruble, raising hopes that the nation’s economic situation may not deteriorate to the level apprehended. Below we highlight four emerging market ETFs that have experienced significant net asset inflow in the week ended October 9. Goldman Sachs ActiveBeta Emerging Markets ETF (NYSEARCA: GEM ) – $157.26 Million This recently launched smart beta ETF tracks the Goldman Sachs ActiveBeta Emerging Markets Equity Index, designed to generate returns by selecting equities based on four well-established attributes of performance – good value, strong momentum, high quality and low volatility. The fund has the highest exposure to Asia, ex-Japan (68%), followed by Europe, Middle East and Africa (18.3%) and Latin America (13.6%). About a quarter of the assets in its portfolio are tied to financial firms. The ETF has amassed roughly $184 million in its asset base while it trades in a volume of roughly 74,000 shares a day. It charges 45 bps in fees from investors per year. Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) – $139.29 Million This is the top asset grossing emerging market ETF, which follows the market-cap weighted FTSE Emerging Index that measures the performance of roughly 850 large and mid-cap companies in 22 emerging markets. This fund is highly focused on China (26.6%), followed by Taiwan (14.1%) and India (12.7%). Sector-wise, about a quarter of its total assets are related to financial services firms. VWO has garnered nearly $38 billion in assets and trades in a heavy volume of roughly 16 million shares per day. It charges 15 bps in annual fees and carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Market Vectors Russia ETF (NYSEARCA: RSX ) – $129.56 Million This ETF tracks the Market Vectors Russia Index, providing exposure to publicly-traded companies that are domiciled in Russia. The fund is heavily biased toward energy, followed by materials and financials. It has gathered around $2 billion in assets and trades in a hefty volume of nearly 12 million shares a day. It charges 63 bps in fees per year and carries a Zacks ETF Rank #4 (Sell) with a High risk outlook. iShares MSCI India (BATS: INDA ) – $119.14 Million INDA follows the MSCI India Index, which measures the performance of equity securities of the top 85% of companies in the Indian securities market. The fund gives the highest weight to the information technology sector, followed by financials and healthcare. It has garnered $3.8 billion in assets and trades in a solid volume of 2 million shares per day. It charges 68 bps in investor fees and carries a Zacks ETF Rank #2 (Buy) with a High risk outlook. Original Post

VNQI: International REITs For Diversification

Summary The Vanguard Global Ex-U.S. Real Estate ETF offers investors a fairly unique risk exposure. To improve portfolio diversification, ETFs like VNQI make sense as a small allocation. The best way to establish international diversification, in my opinion, is to focus on the map. Rather than focusing just on emerging vs developed markets, investors should look at the individual countries to ensure proper diversification. Investors should be seeking to improve their risk adjusted returns. I’m a big fan of using ETFs to achieve the risk adjusted returns relative to the portfolios that a normal investor can generate for themselves after trading costs. One of the funds in my portfolio is Vanguard Global ex-U.S. Real Estate ETF (NASDAQ: VNQI ). I’ll be performing a substantial portion of my analysis along the lines of modern portfolio theory, so my goal is to find ways to minimize costs while achieving diversification to reduce my risk level. When I first looked at VNQI, it seemed like a great way to add a very unique exposure to my portfolio that would be not be duplicated by any of my other holdings. Since then, my perspective has been changing. This is still a good fund, but I think I weighted it too heavily in my portfolio. Expense Ratio While Vanguard funds are known for low expense ratios, this is ETF has the highest expense ratio of any of my holdings at .24%. I accepted that higher expense ratio strictly because I wanted the highly unique exposure and there are only a few liquid competitors in this niche of the market. Regions The following chart breaks down the regional exposure of the ETF. It is a useful chart, but it is remarkably vague about the specific exposures. For instance, I can tell that this fund offers me some emerging market exposure, but I can’t tell exactly which countries we are talking about. If an investor wants to ensure that their international diversification is giving them the full benefits of diversification, they will want to check the individual country allocations. Country Allocations I grabbed the following chart from Charles Schwab: (click to enlarge) This map is much easier for me to read. The allocations look fairly reasonable. Japan certainly appears to have a high weight relative to the amount of actual land there, but the country has a very developed market and makes sense as a key holding for the portfolio. As we go down the list the allocations to individual countries begin to rapidly decline which is another favorable factor in my opinion. Since the inclusion of the ETF is intended to diversify my portfolio, I want a diversified group of holdings. As you’ll see in the holdings section, the individual holdings are low enough in weight that the country allocations may be a larger factor than the individual holdings which include many companies you’ve probably never researched. Highlights Since I was a big bear on China, I like to see China with a lower weight in my international investments. After fierce selling and the falls we saw over the last couple months, the strength of my conviction is weakening and I’m more willing to accept exposure to China in my portfolio. I don’t think I’m to the point of actively seeking it, but I can deal with about 8.7% to China and 8.7% to Hong Kong. Missing Allocations Notice that only one small part of Africa is present and there are no allocations to Latin America. If you’re trying to build a thoroughly diversified international position for the portfolio, it would be wise to consider including ETFs that have these areas. That doesn’t mean investors should avoid VNQI, it just means the ideal compliments to VNQI will likely include exposures to Africa and Latin America. REITs The other thing investors should remember is that this international allocation is investing in REITs. In the domestic market REITs and regular equity markets can diverge quite substantially over years so investors would be wise to consider including allocations to the normal corporate international market. Holdings I built the following chart to represent the top 10 holdings. If you don’t recognize several of these names, don’t worry. I don’t recognize them either and I’m holding quite a bit of VNQI. I selected the ETF because of the country allocations and the REIT structure rather than the individual companies. (click to enlarge) Conclusion The Vanguard Global Ex-U.S. Real Estate ETF offers investors a fairly unique risk exposure. The fund is best used as part of a diversified portfolio and it should not be the only international equity ETF in a portfolio. I would favor complimenting the ETF with other funds that offer exposure to Latin America or Africa as well as some normal equity exposure to other develop markets.