Tag Archives: china

Head-To-Head: S&P 500 ETFs Vs. Dow ETFs

Fears of a hard landing in China slaughtered the global markets last week. China itself saw all its gigantic gains recorded this year going down the drains, and logged the largest one-day plunge since 2007 on August 24 daring all government-backed measures to contain the slide. Back-to-back shockers from China, be it currency devaluation or a six-and-half-year low manufacturing data for August spurred this panic-induced sell-off. The benchmark Shanghai Composite Index dropped 8.5% on Monday. Though China sought to restrain the rout by allowing the pension funds to invest about $97 billion in the market, there was hardly any relief in store. Also, lack of precision by the Fed on the policy tightening timeline roiled the market momentum. The fright among investors was so acute that other global markets followed the footsteps of China. The otherwise steadier U.S. stocks hurtled down, European markets crashed and the Asian stocks fell to a three-year low. Meanwhile, commodities plunged to a 16-year low level while the infamous oil touched a fresh six-and-a-half year low of below $40/ barrel. Emerging markets raised panic alarms leading to an exorbitant exodus in capital. Thanks to this massacre, the U.S. stocks futures logged their largest weekly decline since 2011 in the week ended August 21 and are expected to remain southbound until this jittery market calms down. All major U.S. indices remained in deep red and went into the correction zone , per analysts. The S&P 500 index is lost 12.5% from its May high on a broad-based global slowdown. Dow Jones Industrial Average plummeted about 14.6% (as of August 25) since it hit a high in May thanks mainly to a free fall in oil prices and now both have entered the correction mode. However, Dow was a relatively worse performer than the S&P 500. Momentum Gain However, to contain this slide, China slashed the one-year lending rate by 25 bps to 2.75%, the deposit rate by 25 bps to 1.75% and the reserve ratio by 50 bps to 18%. This, along with a bargain hunt, showered the much-needed gains on Wall Street. As a result, both S&P and Dow advanced close to 4% and captured the highest single-day gain in about four years. Below we highlight four S&P and Dow-based ETFs and analyze their performance and outlook. S&P 500 ETF SPDR S&P 500 ETF (NYSEARCA: SPY ) SPY seeks to track the S&P 500 Index before fees and expenses. The performance of the S&P 500 Index is considered a mirror image of the U.S. equities, as the index represents stocks of the 500 most-valued companies in the U.S. The $171.5 billion SPY has proportionate exposure in almost all sectors with maximum emphasis on Information Technology (20.0%). The sectors like Financials (16.8%), Health Care (15.5%), Consumer Discretionary (12.8%) and Industrials (10.0%) also make up double-digit allocation. The fund is highly liquid trading with over 115 million shares daily. It charges 9 bps in fees. The fund has very low company-concentration risk with no firm accounting for more than 3.6%. SPY is down about 5.3% this year and lost 6% in the last five trading sessions (as of August 26, 2015). The fund has a Zacks ETF Rank #3 (Hold). iShares Core S&P 500 (NYSEARCA: IVV ) This fund also looks to track the S&P 500 index and has AUM of around $68.5 billion. The fund is well spread out across sectors and security. IT, Financials, Health Care and Consumer Discretionary have double-digit exposure in the fund. The product is also devoid of company-specific concentration risks. The fund trades in volume of about 4.1 million shares a day while charges 7 bps in fees and expenses. The ETF lost about 5.7% in the last five trading sessions and 5.3% so far this year. The fund has a Zacks ETF Rank #3. DOW ETFs SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) DIA seeks to match the performance of the Dow Jones Industrial Average Index. The index is price weighted and measures the performance of 30 large cap stocks traded in the U.S. markets. Industrials, Financials, IT, Consumer Discretionary and Health Care all hold double-digit exposure in the fund. However, it is subject to company-specific concentration risks as it invests more than half of its portfolio in the top 10 holdings. This $11.1 billion-fund trades in large volumes of over 5 million shares daily and charges 17 bps in fees. It has lost over 8% so far this year and 6.1% in the last five trading sessions (as of August 26, 2015). The fund has a Zacks ETF Rank #3 with a Medium risk outlook. iShares Dow Jones U.S. ETF (NYSEARCA: IYY ) This $935 million-ETF also tracks the Dow Jones U.S. total market index. This fund has a proportionate exposure in almost all sectors with maximum emphasis on IT (19.0%), Financials (18.1%), Health Care (14.8%), Consumer Discretionary (13.4%), and Industrials (11.0%). Unlike DIA, this 1,255 stocks – fund invests less than 15% share in the top 10 holdings. Probably this is why the fund lost less than DIA. IYY charges 20 basis points as fees and shed 5.9% in the last five trading sessions and over 5.3% so far this year. Outlook Overall, the market may be a little uncertain, but such a sharp sell-off will open up the doors for future gains in the U.S. All four products went into an oversold territory indicating a turnaround. Moreover, latest rate cuts by China should also provide some boost to these equity indices. However, investors should also not that the current prices of the aforementioned ETFs are below their short- and long-term moving averages hinting at further bearishness. So, edgy investors might stay on the sidelines as of now and especially exercise caution when it comes to the Dow ETFs as this spectrum appears more volatile than the S&P 500. Original Post

Are You Selling The Drama Or Buying The Rally?

The critical concern at this juncture is to address whether or not new information genuinely makes risk taking more desirable. Have prospects for the global economy truly improved? If history teaches us that benchmarks tend to retrace half of their losses before retesting their lows – if you feel like you’ve been here before and you don’t choose to be scarred like that again – perhaps you might anticipate better buying opportunities in the weeks ahead. Mini-crash for equities ignites panic selling? Check. The commodity super-slump, ever-widening credit spreads, corporate sales recession and rapid deterioration in market internals throughout June and July assured a reassessment of risk. The brutality and swiftness of that risk reassessment was less destructive for those who respected the dozens of warning signs and acted proactively. Extremely oversold conditions and short covering spark panic buying? Check. As I explained on Tuesday after six days of relentless price depreciation, the S&P 500 had only closed on the lowest end of its 3-standard-deviation range (0.13% probability) on two other occasions – at the tail end of the eurozone sell-off (10/3/2011) and on Tuesday, 8/25/2015. That’s why I wrote in Tuesday’s article, ” Yes, you’re going to see higher prices in the immediate term. Relief rallies happen . ” On the other hand, corrections in other key historical periods (e.g., 1987, 1998, 2010, 2011, etc.) suggest that relief rallies are likely to be short-lived. Typically, stock prices bounce significantly off potential lows, then retest those lows a few weeks later. The S&P 500 SPDR Trust ETF (NYSEARCA: SPY ) plunged 16% in late July-early August of 2011. The exchange-traded index tracker went on to recover one-half (nearly 8%) in late August and September, but ultimately broke to new lows in early October. Similarly, the current correction for SPY came close to 12%. Should anyone be surprised in the vehicle’s ability to reclaim one-half (approximately 6%) of the erosion in price? If history teaches us that benchmarks tend to retrace half of their losses before retesting their lows – if you feel like you’ve been here before and you don’t choose to be scarred like that again – perhaps you might anticipate better buying opportunities in the weeks ahead . The critical concern at this juncture, however, is to address whether or not new information genuinely makes risk taking more desirable. For instance, have prospects for the global economy truly improved? Are corporations actually going to post top-line revenue increases in the 3rd quarter or blockbuster profitability in the 3rd quarter? Will the Federal Reserve’s timeline for tighter borrowing costs be compatible with real prospects for the U.S. economy? If the answers to these questions are “affirmative,” then stocks may be off to the races. Let’s start with the macro-economic backdrop. Is it possible that the seasonally adjusted, revised-and-re-revised GDP of 3.7% for the U.S. in Q2 is a game changer? Probably not. For one thing, the economic growth for the year is at 2.2% – the same low annualized rate that it has been throughout the six-year recovery. Second, the most respected forecasting arm of the Federal Reserve, the Atlanta Fed, anticipates 1.4% 3rd quarter GDP, which means decelerating activity. Last, but hardly least, the global economy is reeling, from debt-slammed Europe to commodity dependent Latin America to recession-wracked China. It follows that prospects for the global economy do not look substantially better, other than the hope and faith that investors may place in China’s multi-faceted stimulus efforts. Perhaps there is new data to suggest that corporations are growing their bottom line earnings per share that would justify a sustainable bullish stock uptrend. This does not look to be the case. According to S&P data compiled by the web log, Political Calculations, trailing 12-month earnings per share for the S&P 500 have declined from S&P analyst projections throughout 2015 from the projections analyst made three months ago (May 20, 2015), six months prior (February 15, 2015) and nine months earlier (November 13, 2014). Top-line revenue? The revenue recession began at the start of 2015 as the Dow Industrials posted sales declines in Q1 (-0.8%) and Q2 (-3.5%); analyst projections for sales declines are coming in at -4.0% for Q3. So new information on the global economic expansion is not particularly compelling. Meanwhile, companies do not appear to be enhancing their top or bottom lines, which does not help price-to-sales (P/S) or price-to-earnings (P/E) valuations. Why, then, would stock investors become enchanted by anything that has taken place in the last few days? Granted, President of the New York Fed, Bill Dudley, helped send stocks rocketing on Wednesday (8/26) with commentary that hiking the Fed’s overnight lending rate in September is looking “less compelling.” Anything that pushes off the possibility of higher debt servicing costs or higher financing costs excites stock bulls. Keep in mind, of course, nobody at the Fed has suggested that they would not raise interest rates here in 2015. It follows that the hope for a continuation of Fed accommodation – hope for a rate hike delay, a slower pace for rate hikes (e.g., every other meeting), and/or smaller increments (one-eighth of a point) – remains the best bet for stock bullishness. We are still proceeding with caution. Most of our clients have 50% exposure to domestic equity ETFs such as the iShares S&P 100 ETF (NYSEARCA: OEF ), the Health Care Select Sect SPDR ETF (NYSEARCA: XLV ), the iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ), the Vanguard Mid-Cap Value ETF (NYSEARCA: VOE ) and the Vanguard High Dividend Yield ETF (NYSEARCA: VYM ). In some instances, we have bought the dips on accidental high yielding dividend aristocrats like Wal-Mart (NYSE: WMT ). Investment grade bonds make up 25% of most portfolios with funds like the iShares 3-7 Year Treasury Bond ETF (NYSEARCA: IEI ) and the Vanguard Total Bond Market ETF (NYSEARCA: BND ). Most importantly, in May and June, when the S&P 500 regularly sat near the 2100 level, we raised our money market cash account levels . Those cash levels are still at 25%. The purpose? Cash reduces portfolio volatility during periods of market stress, limits the downside loss during sell-offs and provides opportunity to buy quality assets at lower prices. Even if I am wrong about the S&P 500 retesting its lows, we are unlikely to miss the bull train as we await a definitive confirmation of improving market internals . Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

Best Performing Mutual Funds Over The Last 1, 3 And 5 Years

Market trends so far this year has not been as robust as the previous two years. Like 2014, markets had started with a dismal January but a robust February followed close on the heels. However this time benchmarks have failed to sustain strong gains. In fact, the recent market rout is in stark contrast to the multiple highs that benchmarks kept scoring in recent years. Among other factors, China’s economic concerns and global growth worries, Greece debt negotiation, a stronger dollar and dismal earnings season for both the first and second quarter have taken the sheen away. China had shown promise of continuing the robust run before it hit a hurdle in mid-June. After strong gains, the second largest economy is showing a downtrend as government measures to prop up prices have shown temporary effect. Not only for China, but it may seem that the U.S.’s Bull Run is having to tackle many hurdles. Nonetheless, investors need not lose heart as there are many profitable investment instruments. There are a good number of mutual funds that have above 20% gains in each of the last 1, 3 and 5 year periods. Moreover, these funds also have robust year-to-date return, surpassing the broader markets’ return. The Bull Run might have helped these funds achieve the 20% plus return, but to gain significantly this year is also commendable. Before we pick these funds, let’s look at the markets’ run over these five years. We have narrowed down the funds backed by favorable Zacks Mutual Fund Ranks. Market Optimism in Last 5 Years Stepped-up economic activities, rising business and consumer confidence, record corporate profits, recovering housing fundamentals and continued job creation have injected optimism into the economy. The housing market has gathered enough strength from the lows of 2009, the labor market looks strong with the unemployment rate hitting five and a half year low. Separately, General Motors is very much back in business and Lehman Brothers emerged from bankruptcy in 2012. Annually, real GDP was always in the green since 2009. For 2010, 2011, 2012, 2013 and 2014, the economy grew at 2.5%, 1.6%, 2.3%, 2.2% and 2.4%. The US central bank has kept the rates at record low for a prolonged period. Lower rates reduce borrowing costs for households, corporate and financial institutions. This encourages borrowing and thereby economic activity. Moreover, the central bank carried three quantitative easing programs to spur the economy. The Fed announced in Oct 2014 the end of its bond-buying stimulus program. The quantitative easing program was started during the 2008 recession in order to stimulate jobs growth. During 2013, the third round of monetary stimulus plan announced the central bank would repurchase $85 billion worth of mortgage and treasury bonds. The QE programs were one of the key factors driving markets up. Keep reading our Mutual Fund Commentary section to find out the worst performing funds over 10 years in our next article. Markets in 2015 The year 2015 has definitely not been an impressive one so far. Losses in January was followed by gains in Feb and then ended in the red again in March. Though markets managed small gains in April and May, they were back to the negative zone in June. Focusing on June particularly, the losses for Dow and S&P 500 were the largest since January. The first half performance of mutual funds cannot be termed as very strong. Only four of the mutual fund categories could post above 10% gain in the first half. Just 41% of mutual funds could manage to finish in the green in the second quarter. This is less than half of the 81% gains scored by mutual funds in the first quarter. In the first half of 2015, fund inflow slumped 36% year over year to $143 billion. This significant decline was largely due to the dismal trend in the second quarter; wherein inflows were down to $41 billion through Jun 17, comparing unfavorably with the $102 billion of inflows in the first quarter. Presently, China’s concerns have merged with other headwinds to lead to global market rout. Last Friday, the Dow Jones Industrial Average slumped over 530 points and over 580 points on Monday. The rout was not solitary to the US markets on Friday. On the other side of the Atlantic, the FTSE 100 hit its lowest level this year. Germany’s DAX was down nearly 16% from record highs reached in April. Separately, Japan’s Nikkei slumped roughly 3% to six-week lows. Meanwhile in Australia, the benchmarks are suffering their worst month since the financial crisis in 2008. Funds with Highest Average Returns Let’s now look into funds that have had the best 3 and 5 year annualized gains and also over the year-to-date and 1-year periods. The year-to-date robust gains prove that these funds were not only strong gainers during the Bull Run, but they have tackled the concerns in 2015 as well. We have narrowed down our search to present 5 funds with the highest gains over these periods using simple average calculation. However, the list is dominated by healthcare funds. They carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy) as we expect the funds to outperform its peers in the future. 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 the likely future success of the fund. The Fidelity Select Biotechnology Portfolio (MUTF: FBIOX ) seeks capital appreciation. FBIOX invests a large share of its assets in companies primarily involved in research, development, manufacture, and distribution of various biotechnological products. Factors such as financial strength and economic condition are considered to invest in companies located all over the world. FBIOX currently carries a Zacks Mutual Fund Rank #1. FBIOX boasts year-to-date return of 8.8% and has returned 27.5% over the past 1 year. The 3 and 5 year annualized gains stand at 35.4% and 35.8%. The annual expense ratio of 0.74% is lower than category average of 1.35%. The Janus Global Life Sciences Fund (MUTF: JAGLX ) seeks capital appreciation over the long run. JAGLX invests a large chunk of its net assets in companies from the healthcare sector. JAGLX invests a minimum of 25% of its assets in companies from “life sciences” sector. JAGLX currently carries a Zacks Mutual Fund Rank #2. JAGLX boasts year-to-date return of 9.5% and has returned over 24% over the past 1 year. The 3 and 5 year annualized gains stand at 34.1% and 28.9%. The annual expense ratio of 0.92% is lower than category average of 1.35%. The T. Rowe Price Health Sciences Fund (MUTF: PRHSX ) invests a lion’s share of its net assets in common stocks of companies engaged in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences. PRHSX may invest in companies of any size, the majority of fund assets are invested in large and mid capitalization companies. PRHSX currently carries a Zacks Mutual Fund Rank #2. PRHSX boasts year-to-date return of 10.3% and has returned 25.1% over the past 1 year. The 3 and 5 year annualized gains stand at 31.3% and 31.7%. The annual expense ratio of 0.77% is lower than category average of 1.35%. Fidelity Select Health Care Portfolio (MUTF: FSPHX ) seeks capital growth over the long run. FSPHX invests a lion’s share of its assets in companies involved in designing, manufacturing and selling of healthcare products and services. FSPHX invests in companies throughout the globe. FSPHX currently carries a Zacks Mutual Fund Rank #1. FSPHX boasts year-to-date return of 3.5% and has returned over 14.3% over the past 1 year. The 3 and 5 year annualized gains stand at 30.9% and 28.2%. The annual expense ratio of 0.74% is lower than category average of 1.35%. Fidelity Select Retailing Portfolio (MUTF: FSRPX ) invests a minimum of 80% of its assets in securities of firms involved in merchandising finished goods and services to consumers. FSRPX currently carries a Zacks Mutual Fund Rank #2. FSRPX boasts year-to-date return of 5.1% and has returned 15.9% over the past 1 year. The 3 and 5 year annualized gains stand at 20.3% and 22.9%. The annual expense ratio of 0.81% is lower than category average of 1.46%. Link to the original article on Zacks.com