Tag Archives: china

Asia Ex-Japan And U.S. Large-Cap Value: Two ETFs Trading With Outsized Volume

In the past trading session, U.S. stocks were in the mixed-to-positive territory with the China currency issue deciding the course of the market. For the top ETFs, investors saw SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) gain about 0.1%, SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) add 0.06%, and PowerShares QQQ Trust ETF (NASDAQ: QQQ ) move higher by about 0.4% on the day. Two more specialized ETFs are worth noting in particular though, as both saw trading volume that was far outside of normal. In fact, both these funds experienced volume levels that were more than double their average for the most recent trading session. This could make these ETFs ones to watch in the days ahead to see if this trend of extra-interest continues: iShares MSCI All Country Asia ex-Japan Index ETF (NASDAQ: AAXJ ): Volume 3.14 times average. This all-country Asia ex-Japan ETF was in focus yesterday as roughly 4.13 million shares moved hands compared to an average of roughly 1.31 million. We also saw some stock price movement as shares of AAXJ lost over 1.7% yesterday. The movement can largely be blamed on the latest Chinese currency devaluation which sparked off a currency war fear among these Asian nations to maintain their export competitiveness as these can have a huge impact on Asian stocks like what we find in this ETF’s portfolio. For the month, AAXJ is down 7.9% and has a Zacks ETF Rank #3 (Hold). iShares Morningstar Large-Cap Value ETF (NYSEARCA: JKF ): Volume 3.13 times average. This U.S. large-cap value ETF was under the microscope yesterday as nearly 28,300 shares moved hands. This compares to an average trading day of 9,050 shares and came as JKF added about 0.2% on the session. The move was the result of a sudden lift in value quotient in the market, thanks to the rout in the global market due to the Chinese currency episode. JKF was down about 1.3% in the past month; though the fund currently has a Zacks ETF Rank #3. Original Post Share this article with a colleague

U.S. Treasury ETFs Rise On Yuan Devaluation

The global investing world across asset classes was caught off guard on August 11 as Chinese policymakers devalued the country’s currency by 2% against the greenback to boost its waning export profile. The step resulted in the largest single-day decline since the historical devaluation in 1994 , after China arranged its official and market rates in a line. As a result, yuan has now plunged to a four-year low level. The Chinese central bank defended its currency intervention ‘as a free-market reform’, but global experts apprehend a currency war in the near future, especially among the Asian tigers. Most export-centric economies are likely to resort to currency devaluation to rev up their exports. However, yuan devaluation took the global markets in its grip as most asset classes were in red. In fact, the move was criticized by U.S. lawmakers and viewed as means of taking undue favor in exports. Bloodbath in global equities, commodities and currencies spurred a flight to safety for a valid reason. Several ETFs on safe haven assets including greenback-based PowerShares DB US Dollar Index Bullish Fund (NYSEARCA: UUP ) and gold bullion-based SPDR Gold Shares (NYSEARCA: GLD ) added gains on August 11. UUP gained 1.5% after hours and GLD added 0.5% in the key trading session. Here investors should note that the UUP’s strength came mainly on the back of Yuan devaluation and the looming Fed rate hike concern; a safe haven criterion played a lesser role for its ascent. On the other hand, though gold advanced for a day, we are skeptical about its momentum as the metal is due for a southward ride (presumably) in the near term due to a number of issues. In fact, this yuan devaluation will likely curb the import demand of gold from China (a key gold consuming nation) as a feebler currency will turn imports pricier. U.S. Treasury: True Safe-Haven In such a backdrop, investors started to position themselves for the imminent volatility in the risky assets and started to park their money in the safer U.S. treasuries, despite the Fed rate hike worries. Most U.S. treasury ETFs, specially the long-dated ones, added considerable gains on August 11. Yields on the U.S. benchmark 10-year notes, slipped to 2.15% on August 11 from 2.24% the day before. Below we have highlighted four Treasury ETFs that have hogged investors’ attention lately and added gains despite the looming rate hike concerns. Vanguard Extended Duration Treasury ETF (NYSEARCA: EDV ) This fund provides exposure to the long-term Treasury STRIPS market by tracking the Barclays U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index. The fund holds 71 bonds in total with effective maturity of 25.2 years and average duration of 24.8 years. Expense ratio comes in at 0.12%. The product has amassed $379.2 million in its asset base. Its gains came in at 2.14% in the yesterday’s session (on August 11). Pimco 7-15 Year U.S. Treasury Index Fund (NYSEARCA: TENZ ) The fund looks to track the returns of the BofA Merrill Lynch 7-15 Year US Treasury Index. The index is unmanaged and tracks the performance of the direct Sovereign debt of the U.S. Government with at least $1 billion in outstanding face value and a remaining term to final maturity of at least 7 years and less than 15 years. The fund has amassed over $24 million in assets so far and charges 15 bps in fees. The fund holds 15 bonds in total with effective maturity of 9.03 years and average duration of 7.89 years. TENZ was up over 2.8% in the last session. iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) The ultra-popular long-term Treasury ETF – TLT – tracks the Barclays Capital U.S. 20+ Year Treasury Bond Index and has AUM of $4.92 billion. Expense ratio comes in at 0.15%. Holding 29 securities in its basket, the fund focuses on the top credit rating bonds with average maturity of 26.82 years and effective duration of 17.35 years. The fund was up 1.6% on August 11. SPDR Barclays Capital Long Term Treasury ETF (NYSEARCA: TLO ) The fund considers U.S. treasuries that have a remaining maturity of 10 or more years. The $201 million-fund holds 45 securities with average maturity of 24.98 years and effective duration of 17.23 years. The fund charges 10 bps in fess and was up about 1.5% on August 11. Bottom Line Having said this, we would like to note that the bond market is in a volatile mood. Especially the U.S. fixed income space is in a tug of war between safe haven demand and the imminent Fed rate hike. Though U.S. benchmark yields fell lately, any hint at Fed policy normalization will once again push up interest rates. So, edgy investors need to be hawk-eyed before playing the safe-haven fixed-income securities in this choppy market. Original Post

Optimal Global Equity Allocation WIth Individual Stocks

Summary Even a smallish portfolio stock can be well diversified internationally. Individual investors typically do not rely on asset correlations in their investment decisions. Portfolio risk-return efficiency can be enhanced by exploiting asset correlations. An “optimized” portfolio doesn’t neutralize stock risk: returns are likely to issue from well-known risk factors. In previous articles, I have discussed both minimum volatility portfolios and domestic equity allocation . In the former article, we saw both that accounting for the volatility and correlation how expanding the equity set can lead to better investment outcomes in terms of terms Sharpe ratios (risk-reward efficiency). In the latter article, we saw how a collection of individual stocks with a bit of discretion can perform better than a portfolio of risk-diluted ETFs. This article blends the two approaches by creating a stock-based portfolio with some of the qualities of an allocation-based strategy, but using individual stocks. The goal is to develop a portfolio of 20-50 stocks – this is about the number needed to create a reasonably diversified portfolio whilst remaining tractable enough to manage. Individual investors with small portfolios typically reduce risk through large-cap and dividend stocks, emphasizing careful stock selection over portfolio construction. In contrast to that intuitive and legitimate approach, the idea here is to reduce risk by exploiting the statistical covariance of the entire global equity market. This will be done using constrained mean-variance optimization. The next section describes the process and structures that define the solution portfolio, but if you want to use this article as a “quick pick list” for risk-efficient stocks with low correlation, feel free to jump down to results and discussion. Investable Universe With over 37,000 equities to invest in worldwide, security selection is a daunting process. Like most ETF benchmark indices that number needs to be winnowed down for reasons of both tractability and investability. What might be considered the closest proxy for the world portfolio, (NYSEARCA: VT ), has only about 7,300 securities. In this exercise, the initial pool screened for stocks with at least 3 analyst estimates left about 6,200 assets. This screen acts as an implicit liquidity screen, and biases the sample toward large-cap stocks and well-followed small/mid-caps. The next screen limits stocks to those with dividend yield greater than the median (1.9%) and the forward earnings yield (EPS/price) is likewise greater than the median (5.25%). The expected dividend has to be less than expected profit, and book value must be positive. This leaves about 1,100 stocks. The equities are divided into 4 market capitalization based classes: micro ( Additional disclosure: I own some of the stocks in the solution portfolio as similar optimization techniques belong to my normal repertoire of security selection.